KUALA LUMPUR (May 24): The imposition of sales tax by the state governments of Sabah and Sarawak is the main reason why prices of fresh palm oil fruit bunches (FFB) in those two states are lower than in the Peninsular Malaysia, said the Ministry of Plantation and Commodities (KPK).

The ministry said the price of FFB in each region is determined according to the price of crude palm oil (CPO) and palm kernel (PK) in the market as well as taking into account the cost of transportation from the plantation to the oil palm mill.

“In Sabah, a 7.5% sales tax is imposed on the price of CPO, while in Sarawak it is 5% as well as a 5% sales tax on the price of crude palm kernel oil (CPKO).

“This sales tax causes the net price of CPO at the factory gates in Sabah and Sarawak to be lower than the CPO price in the peninsula,” said the KPK in a written response posted on the Parliament website on Wednesday (May 24).

“The quality of FFB received at the manufacturer's palm oil factory will also determine and affect the price of FFB based on factors such as the level of ripeness of FFB, the length of time FFB is harvested, and foreign matter (dirt) found in the FFB such as sand.

“The difference in palm oil extraction performance (oil extraction rate or OER) at the palm oil mill level will also affect the price because it involves the level of efficiency of operating the mill or machine to minimize oil losses during the processing works to produce CPO," said the ministry.

KPK said the government has no plans to implement FFB pricing in the market for the time being because the price is based on market forces determined by supply and demand.

Meanwhile, the ministry also explained that it is evaluating and in the consideration stage for the proposed re-establishment of subsidies, especially for the oil palm replanting programme for smallholders based on high demand from the industry, especially from the smallholders.

"KPK together with the Ministry of Finance (MOF) has taken the initiative by creating a financing or easy loan programme, better known as the Oil Palm Smallholder Replanting Financing Scheme (TSPKS) and the Oil Palm Smallholder Agricultural Input Easy Financing Scheme (IPPKS) in collaboration with Agrobank," it said.