KUCHING: Effective April 1, timber companies in Sarawak are subjected to a new sales tax (SST) ranging from 1 per cent to 2.5 per cent on the export of selected timber products.
The affected timber products include plywood, fibreboard, sawn timber, veneer, particle board, and woodchips.
Sarawak Timber Association (STA) chairman Datuk Henry Lau said despite the decision by the Sarawak government to impose the SST on timber products in October 2021, its members only received the notification to register for the tax on March 21.
“This has caught many timber industry players off-guard and left them with very little time to prepare,” he said.
Lau appealed to the state government to grant STA members a 12-month grace period for the SST collection. Additionally, he has requested that instead of charging the prescribed tax rate, the government should “allow a phased approach to gradually increase the tax rates over a span of two years”.
Lau noted that the newly imposed tax on selected timber products could have significant and far-reaching consequences for the downstream timber industry.
This included increased production costs, decreased competitiveness and market share, reduced investment, downsizing of the downstream timber industry and eventually, loss of revenue for the Sarawak government.
“The survival of the downstream timber industry is at stake here, what more to say achieving the Sarawak government’s export target of RM6 billion in value-added timber products by 2030,” Lau said in a report released at the STA’s AGM last week.
The introduction of the SST on the export of selected timber products came four years after the state government raised the timber rehabilitation and development cess to RM5 from 60 sen per cubic metre (cu m) or an increase of 800 per cent in 2019.
In 2017, timber companies were slapped with higher premium for hill timber at RM50 per cu m or a jump of 6,000 per cent.
The STA had then claimed that the higher timber premium and timber rehabilitation and development cess have raised the costs of logs and timber products by RM110 per cu m, assuming the recovery rate of 50 per cent.
The prolonged shortfall and high cost of logs and labour problems have also affected the downstream timber processing mills, with some having to scale down their production or cease their manufacturing activities.
One of the top timber firms, Jaya Tiasa Holdings Bhd, even halted its low-making plywood operations in 2020.
Meanwhile, it is still unknown how much the Sarawak government stands to collect per year from the new SST on selected timber products.
Sarawak exported about RM3.1 billion worth of plywood and other timber products (free on board value) and RM271.4 million from exports of woodchips in 2022, according to exports data from the Sarawak Timber Industry Development Corp.
The exports of plywood alone brought in foreign exchange earnings of RM2.12 billion.
In January-February 2023, Sarawak’s export receipt from plywood and timber products amounted to RM367.5 million while woodchips stood at RM33.8 million.
Sarawak’s SST collection in 2022 rose to RM5.6 billion or 84 per cent of the state’s total tax revenue, with the bulk of the SST derived from 5 per cent imposed on crude oil, liquified natural gas and petroleum products.
SST is also imposed on exports of oil palm products, aluminium and lottery.
On forest certification, Lau who is also group managing director of the diversified KTS Group, said 18 forest management units and seven forest plantation management units in Sarawak have achieved forest management certification, covering a total of 1.57 million ha of forest area.
He said STA is grateful to Premier Datuk Patinggi Tan Sri Abang Johari Tun Openg and the state government for honouring the pledge in granting long-term tenure of timber licences to its members obtaining the Forest Management Certification (FMC).
“It will certainly motivate more licensees to pursue FMC, especially if the Sarawak government could grant a longer tenure of 60 years, instead of 30 years presently which will facilitate longer term planning and optimal management of the forests,” he added.
Lau said the amendments to the Forest Ordinance, 2015 (Cap 71) to include forest carbon activities in 2022 have sparked keen interest in some STA members to embark on forest carbon trading.
