SARAWAK’s palm oil industry is calling for a revision of the State Sales Tax (SST) formula to provide financial relief for producers, ensuring the sector’s sustainability and continued growth.
John Ilus (GPS-Bukit Simuja) highlighted the industry’s significant contribution to the state’s agriculture sector and economy during his debate in the August house today (Nov 14).
“It has catalysed economic growth, transformed vast idle land into productive areas and provided a sustainable livelihood for the rural communities with limited access to other economic opportunities.
“Last year, the palm oil section contributed about 10.6 per cent, or RM15 billion, to Sarawak’s GDP.
“Palm oil is a major export commodity, accounting for 12.6 per cent of Sarawak’s total exports in 2022, surpassing crude petroleum at 10.9 per cent; therefore, the palm oil sector deserves support and a regulatory framework that encourages its growth.”
Additionally, he expressed that palm oil producers are subject to SST, the Windfall Profit Levy (WPL), Cess, export duties, and income taxes.
“Since the implementation of the SST in 1998, palm oil producers in Sarawak have shouldered additional tax obligations as well as WFL, Cess, export duties, and income taxes.
“These layers of taxes place a financial strain on industry players, reducing their profit margins and limiting their ability to reinvest in production capacity and technological improvements.”
Furthermore, John said the increment of the minimal wage would aggravate the financial strain on plantation companies.
“The introduction of higher levies for foreign workers and mandating EPF contributions for foreign employees under the budget to ensure fair wages and improved welfare for labourers will increase operational costs of the industry, which heavily relies on foreign labour.”
Moreover, the palm oil industry faces global environmental sustainability and regulation pressures.
“Anti-palm oil campaigns have negatively affected the image of palm oil, its derivatives and palm-related products.
“The introduction of the European Union’s Deforestation-Free Regulation restricts the expansion of oil palm estates into new areas and imposes more demanding traceability and certification requirements.
“The cost of production for CPO has been continuously rising, and the average Sarawak production cost for CPO is around RM3,200 per tonne, thus resulting in high operating expenses for companies striving to remain competitive.”
John said that the current SST is triggered when the CPO price reaches RM1,000 per tonne, with a maximum SST rate of five per cent applied when the price exceeds RM1,500 per tonne.
“The SST is higher than the profit before tax (PBT) as it was taxed at revenue level or upfront, reducing the margin of palm oil mills.
“In this respect, I propose that the government review and apply SST to start when the CPO is above the cost of production on a price range basis instead of a flat rate.”
John further stressed that global demand for sustainable palm oil is growing as consumers and businesses become more conscious of environmental impacts and ethical sourcing practices.
“It aligns the industry with modern environmental, social, and governance (ESG) standards, essential for securing its future.
“The reduction in SST rate will enable the industry to meet ESG standards through investments in eco-friendly practices, waste management and community engagement.
“Funds could be directed toward research on sustainable farming practices, reducing the carbon footprint, advancing the circular economy and fostering partnerships with local communities to ensure shared benefits from the industry’s growth.”
John emphasised that Sarawak’s palm oil industry is grappling with significant challenges, including increasing production costs, regulatory pressures, and declining crop yields.
“The ‘Proposed Revision of SST Formula for CPO’ would support the industry’s sustainability and long-term economic contributions to Sarawak’s coffers and ensure that the sector remains resilient and competitive globally.
“With strategic support and regulatory adjustments, such as the revision of the SST formula, can encourage Sarawak’s palm oil industry to continue to thrive as a valuable economic asset, delivering benefits beyond profits to sustainable growth and community development.”
