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Commodities

Malaysia to levy additional 1-ringgit tax on palm oil next year

Income to fund reforestation, wild life conservation, boost sustainable farming

Malaysia is raising its tax on palm oil to 14 ringgit per ton in to support efforts to make the industry more sustainable.   © Getty Images

KUALA LUMPUR (Nikkei Markets) -- Malaysia plans to levy from next year an additional one ringgit ($0.24) tax per metric ton of crude palm oil produced in the country to channel such income to a proposed fund aimed at financing reforestation and wildlife conservation as the world's second largest producer of the commodity ramps up efforts to boost sustainable palm plantation.

The state-run Malaysia Palm Oil Board will collect the additional tax from the oil palm industry players, the federal Minister Of Primary Industries Teresa Kok said at a conference on Tuesday. Currently, for every metric ton MPOB collects 13 ringgit tax.

"This is to show to the world that oil palm industry in Malaysia is concerned about the environment and wildlife conservation, and we are serious and working towards this direction," Kok said.

Analysts said although the move is likely to slightly hurt the industry, the impact to companies' profitability at this juncture is insignificant as crude palm oil prices have recovered from their lowest levels. "But any additional tax is never good news. This will be an additional cost and it is expected to be permanent, regardless of the palm oil price level," said CIMB Investment Bank's Analyst Ivy Ng. "The impact will be more significant to small holders and when the CPO price falls near to the planters' cost level."

The additional levy comes as Malaysia fights allegations from environment groups, which accuse the country and neighbor Indonesia of doing little to halt the clearing of vast swathes of tropical forests for oil palm plantations. Destruction of rainforests risk exotic wild species ranging from Orangutan to pygmy elephants in one of the world's richest biodiverse zones.

However, the government played down the concerns.

Oil palm plantation is not a major cause of deforestation as it accounts for only 0.4% of the total global agricultural area, Prime Minister Mahathir Mohamad said at the same conference.

In Malaysia, oil palm is mainly planted in designated agricultural land, and new plantations which have plateaued over the recent years are expected to remain at the same level in the months ahead, he added.

The latest figures showed about 55% of Malaysia's 33 million hectares area is under forest cover, exceeding the country's initial pledge at the Rio Earth Summit, Mahathir said.

Of late, palm oil that is widely used in everything from candies to soaps, has been at the core of a dispute with the European Union where the parliament has recommended banning its use in transport fuels, sparking protests from Indonesia and Malaysia, the world's two top producers.

"More work is needed especially in terms of an effective and strategic communication plan to respond to all the negative perception and unfounded allegations toward palm oil industry," minister Kok said. "We need to be more aggressive in promoting our palm oil and its sustainability."

The government has announced an allocation for oil palm replanting and agricultural inputs loan scheme at a rate of 2% per annum over 25 years to ease the financial burden and reducing maintenance cost of small holders to replant oil palm, Kok said.

The government is also encouraging small holders to venture into mixed farming to diversify their income, particularly during low commodity prices, she added.

Meanwhile, Malaysia will continue to vigorously push for shipments of certified sustainable palm oil to be internationally recognized and accepted, Mahathir said. The government has mandated a state-backed company to work with small holders to expand certified sustainable palm oil production, the prime minister added.

"Malaysia firmly upholds its commitment in supplying Certified Sustainable Palm Oil (CSPO) to the world, while voluntarily adopting internationally accredited sustainability standards," Mahathir said. "In addition, Malaysia has mandated the certification of its entire palm oil supply chain by January 2020 through the Malaysian Sustainable Palm Oil (MSPO) certification."

--Sarah Nadlin Rohim and Yimie Yong

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