MPOB Cess Order 2020 add-on of RM110 million -MEOA Appeals for Engagement

The Malaysian Estate Owners’ Association (MEOA) is appealing for the implementation of the MPOB Cess Order 2020, which is intended to take effect from 1 January 2021, to be postponed to a later date. The new MPOB Cess Order 2020 stipulates the payment of an additional RM5.00 cess per tonne of crude palm oil CPO) and crude palm kernel oil (CPKO) produced, over and above the current total cesses of RM14.00 per tonne of CPO produced.


MEOA opines that the proposal to levy this additional cess should be open for further dialogue with the oil palm growers. The postponement proposed by MEOA would enable the relevant stakeholders, especially the affected cess contributors of the oil palm plantation fraternity, to be given the additional opportunity to participate in inclusive engagement with the Ministry of Plantation Industries and Commodities (MPIC) and its agency, the Malaysian Palm Oil Board (MPOB), on their intent and proposals for using the funds collected under this additional cess. It is widely understood from previous engagements with MPOB and from MPOB’s circulars for public comments, that the funds are intended to be used for mechanisation and automation (M&A) in the industry.


Looking at Ringgit quantums, every RM1 per tonne cess levied on CPO and CPKO, will amount to about RM22 million cess collection per year. It is estimated that an additional RM110 million will be collected when the Cess Order 2020 takes effect over the one-off span of one year. This is based on an estimated Malaysian annual production of 20 million tonnes of CPO and concurrently 2 million tonnes of CPKO at RM5.00 cess per tonne, giving a total of RM110 million. In earlier stakeholder engagements, there were proposals that the Malaysian government would accord a matching grant to the mechanisation initiative at the ratio of 1:1. This was to be in line with the spirit to promote partnership between the government and private sector. However, in the recent Budget 2021 announcement, the government revealed that only RM30 million of matching grants has been budgeted to encourage ‘investments’ in M&A. Thus, the matching ratio would work out to be 0.27: 1.


In an announcement on the proposed MPOB Cess Order 2020 on its website recently, MPOB notified that the RM5.00 per tonne cess would be levied for the purpose of intensifying the pursuit of research and development on M&A for the oil palm industry. In its licensing and enforcement division website (led.mpob.gov.my), MPOB said it was now welcoming public feedback on the draft of the Malaysian Palm Oil Board (Cess) Order 2020 from 20 November 2020 until 30 November 2020.


MEOA has always maintained its continued support for effective and targeted M&A initiatives for the oil palm industry aimed at reducing its high labour dependency. Notwithstanding this, there is the dire need to provide clarity and build consensus among the cess contributors on how the funds from MPOB Cess 2020 will be used. There are many important matters to be ironed out among stakeholders which include: the terms of reference for a dedicated committee to manage this fund; its detailed governance structure for better accountability; the role of MPOB; M&A project identification and prioritisation; mechanisms to allocate funds to selected projects; any patent/rights and commercialisation related matters arisen from using the fund. If need be, a review and restructuring of cess and tax is necessary, exploring options of re-channeling some funds from the present windfall profit levy to be used as expenditure on M&A, consideration to revise the proposed amount of cess for M&A along with a delayed start-off or phasing of its implementation.


At present, the Malaysian oil palm growers comprising 680,000 smallholders, small and midsized planters to big plantation companies, are already subjected to earlier MPOB Cess Orders that now total RM14.00 cess per metric tonne of palm products produced. The total cess collection is more than RM300 million per annum, much of this amount being channeled for oil palm R&D purposes, including for M&A.


It is important for the stakeholders to have a macro-perspective on the taxation already imposed on oil palm growers and the challenging realities they are facing. It must be appreciated that although CPO prices have recently surged to above RM3,000 per tonne, many growers are just starting to recoup their losses and investments over the last few years of poor prices, while many growers also need the extra generated profits now to reinvest in replanting their aging trees. The age profile of Malaysian oil palm trees reveals that there is a high percentage of trees more than 20 years old, that are too tall for the harvesting of bunches. The Windfall Profit Levy has also kicked in against the established CPO price thresholds (above RM2,500-00 per tonne CPO for Peninsular Malaysia, and above RM3,000-00 for Sabah and Sarawak). In addition, come 31 December 2020, the CPO export duty structure may be reactivated - if the prevailing duty-exemption is removed. Against its present duty structure and set against the current CPO price band of RM3,301-RM3,450, the re-imposition of export duty at 7.5% will garner a considerable sum of about RM250 per tonne of CPO. The Sabah and Sarawak planters also continue to absorb extra cost to account for their respective state sales tax of 7.5% and 5% respectively. It should be pointed out that no oil palm planters will be rejoicing endlessly with today’s palm oil prices, given the cumulative effect of relentless cost increases over the years. Today’s derived margin set against many unabated production costs is certainly not windfall profits.


MEOA acknowledges that M&A should be R&D’s key focus and top priority going forward, to address the high labour dependency in the plantation sector. However, the governing agencies must advocate and exercise inclusivity and provide better clarity on how the cess fund will be used for the purposes of M&A. Until and unless MPIC and its agency MPOB can provide assurance and accountability to the contributing growers on how the fund will be used and accounted for, it may lead to sending a wrong signal or to the incorrect perception that the contributors are subjected continually to more and more taxation, without any say over how their contributions are spent, and without assurance that their contributions are spent on R & D actually useful to the industry’s requirements and needs. In short, a lack of engagement will Cesses, Windfall Profit Levy and State Taxes RM' mil Year 1 MPOB Cess Order 2000 for R&D, regulatory and promotion @ RM11 pmt CPO and CPKO 244 In Year 2019 2 MPOB Price Stabilisation Scheme for eg. replant and biofuel @ RM2 pmt CPO and CPKO 44 In Year 2019 3 MPOB 'Green' Cess for environment @ RM1 pmt CPO and CPKO - Effective 1 January 2020 22 Estimate for Year 2020 4 NEW : MPOB Cess Order 2020 for mechanisation @ RM5 pmt CPO and CPKO - Proposed effective 1 January 2021 110 Estimate for Year 2021 3 Windfall Profit Levy, reintroduced in 2008 (based on CPO price but chargeable per tonne of FFB) 20 In 2019 amid low CPO price (3% in Pen. Malaysia threshold ≥ RM2,500 pmt; 1.5% in Sabah/Swak threshold ≥ RM3,000 pmt) 760 Estimate for Year 2020 based on CPO price at RM3,200 pmt 4 State Government CPO Sales Tax (7.5% for Sabah and 5% for Sarawak) 1,311 In Year 2019 Note : Above taxation exclude a mulitude of other taxes and duties which include : Income Tax , CPO Export Duty, Property Assessment Tax, Workers Levy, FOMEMA, SST etc TAXING THE OIL PALM GROWERS IN MALAYSIA reinforce the impression amongst growers that hurting ‘the goose that lays the golden egg’ is of little importance to the authority stakeholders.


Amid the Covid-19 pandemic, the oil palm industry is of greater importance in keeping the socioeconomic wheel in the country turning, especially in rural economies, along with its multiplying and spin-off effects across its supply chain. The oil palm industry is a long-haul business and the growers need to recoup and reinvest for the industry to be competitive and sustainable.