Tax Change to Aid Malaysian Palm Producers

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Tax Change to Aid Malaysian Palm Producers
Workers harvest palm fruit. Palm oil, the highest volume plant oil, is used primarily in foods and biofuels but also in renewable lubricants. © KYTan

The government of Malaysia – the world’s second-largest palm oil producer – is raising the threshold of its windfall tax for the palm oil sector and adjusting its levy and levy rates in its 2022 budget to help domestic suppliers weather such factors as rising costs and a shortage in labor, according to news reports.

The Southeast Asian country will raise the threshold of the windfall tax for the palm oil sector from 2,500 Malaysian ringgit to RM 3,000 for the states of Sabah and Sarawak, and will bring the two states’ levy rates in line with a national 3% rate.

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Palm oil, the highest volume plant oil, is used primarily in foods and biofuels but also in renewable lubricants. Indonesia is the world’s largest producer.

According to the news reports, the government is allocating RM35 million toward a replanting scheme by smallholders and RM 20 million to counter international anti-palm oil activities. The global palm industry has faced criticism over environmental concerns, like deforestation. Malaysia’s palm oil also faces increased competition as some countries, like India, are taking regulatory steps to encourage domestic palm oil production and decrease their reliance on palm imports.

The COVID-19 pandemic has hampered harvesting of palm oil in Indonesia and Malaysia, with news reports noting that related border restrictions impacted the ability of plantation owners to hire migrant workers.

In August, India announced funding for a program aimed at boosting the country’s production of crude palm oil up to 1.1 million tons by 2025-2026 and up to 2.8 million tons by 2029-2030 to alleviate dependence on imports.

Palm oil farmers produce fresh fruit bunches, from which oil is extracted. Prices of these bunches are linked to international crude palm oil price fluctuations. As of September, palm oil prices were up 56%, compared to September 2020, according to the International Monetary Fund’s global market price index for the commodity.