KUALA LUMPUR (July 2): The Ministry of Plantation and Commodities will propose under Budget 2025 to channel a portion of the existing windfall tax on the palm industry to levy-paying planters for replanting.

The current windfall levy formula is impractical due to the sharp rise in costs, Plantation and Commodities Minister Datuk Seri Johari Abdul Ghani acknowledged. One of the ministry's priorities is to review the windfall levy, he said.

"The cost used to be RM1,800 to produce one tonne of palm oil; now it has gone up to RM2,800-RM3,000, depending on the plantation size. Therefore, the windfall levy formula is no longer suitable," Johari told the Dewan Rakyat on Tuesday during the oral question-and-answer session.

Malaysia currently imposes a windfall levy of 3% when palm oil prices top RM3,000 per tonne in Peninsular Malaysia and when prices go higher than RM3,500 per tonne in Sabah and Sarawak.

Planters in Malaysia, the world's second-largest producer of the edible oil used in everything from lipstick to diesel, have been calling on the government to review the tax regime for years. In addition, Malaysia has a multi-tier tax rate of between 4.5% and 8.5% for exports of crude palm oil that kicks in when prices exceed RM2,250 per tonne.

Johari said the ministry will discuss the windfall levy with the Malaysian Palm Oil Board and bring the matter to the Ministry of Finance.

Replanting in focus to boost yield

Meanwhile, Johari said Malaysia's palm oil production stood at 18.5 million tonnes in 2023, which is relatively low compared to Indonesia's production of 48 million tonnes.

He said several factors contributed to the lower production of palm oil compared to Indonesia, including the need to comply with good land-use practices to avoid deforestation and climate change.

"We do not clear new land for oil palm plantations, instead we focus on production,” Johari said.

Of the 5.7 million hectares of land under oil palm plantation in the country, 4.2 million is owned by the private sector, and the remaining 1.5 million is managed by smallholders, he noted.

However, the yield from the 1.5 million hectares managed by smallholders has decreased over the years as the oil palms age, and the smallholders lack the capital for replanting, Johari said.

Replanting should occur at a rate of 4% to 5% annually based on industry best practices, but the annual replanting rate remained low at 1.8% between 2014 and 2023, he said.

To ease the burden on smallholders, Johari said the government is launching a new consolidation scheme to optimally manage smallholder oil palm plantations by combining them into larger, commercially viable estates on top of the RM100 million incentives for replanting under Budget 2024.

"This will ensure effective worker management, replanting, and the use of high-quality seeds and fertilisers for long-term sustainability," Johari added.