Developers' operational costs expected to rise
PETALING JAYA: Property developers' operational costs could rise following the government's move to impose a 6% sales and service tax (SST) on construction services.
Effective July 1, 2025, construction services for infrastructure, commercial and industrial buildings will be subject to a 6% service tax if the taxable value exceeds RM1.5mil annually.
However, exemptions are provided for residential buildings, public utilities related to housing, and non-reviewable contracts, which will enjoy a 12-month grace period from the effective date.
Additionally, business-to-business (B2B) relief will be available to prevent double taxation.
According to Maybank Investment Bank Research, the SST on construction services from July 1, 2025 will add pressure to property developers' margins for ongoing (sold) projects, as they might have to absorb the additional cost for commercial and industrial builds.
It pointed out that there is currently no guideline on how it applies to contracts entered into before July 1 but billed thereafter, or whether it is only applicable to new contracts signed after the SST implementation date.
'As most contracts incorporate a regulatory change review clause, developers are expected to bear this SST, rather than contractors,' the research house said.
It believes that developers are likely to pass on these additional costs to buyers (those unsold stock and future projects) to avoid margin erosion stemming from rising construction costs.
However, a slower economic growth trajectory and weak market demand could constrain pricing power.
'Developers engaged in data centre (DC) construction, including Eco World Development Group Bhd (EcoWorld Malaysia) and Sime Darby Property Bhd (SimeProp), could also see increased expenditure, potentially reducing their internal rate of return,' it said.
Maybank IB estimates a four-sen reduction in EcoWorld Malaysia and SimeProp's revised net asset value or RNAV estimates due to the 6% additional costs associated with their DC constructions.
The research house added that with a strategic emphasis on generating recurring income from investment properties in recent years, such as malls, the 8% SST on rental income would be borne by tenants, which could restrain developers' leverage for rental increment negotiations.
'We maintain our earnings forecasts, pending clarity. Maintain 'neutral' on the property sector.
'Our buys are Eco World International Bhd , S P Setia Bhd and EcoWorld Malaysia,' it said.
The research house highlighted risks to its calls including weaker-than-expected property sales dragged by weaker economic outlook, policy risks, stricter lending measures by the banks, higher-than-expected liquidated ascertained damages compensation following the latest ruling by the Federal Court, and rising building material costs and labour issues.
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Borneo Post
7 hours ago
- Borneo Post
Making sense of oil palm taxes on growers
Source: The Malaysian Estate Owners Association (MEOA) Annual Report 2025 Oil palm growers are experiencing a strong upswing. Once overlooked as plain jane on Bursa Malaysia, plantation stocks are now drawing renewed interest. With CPO prices holding steady around RM4,000–RM4,200 per tonne, over half of listed planters are in a net cash position. Dividends are returning, balance sheets are solid and many planters are benefiting from brighter conditions. The formula? Mature estates, tight cost control and favourable prices. No tech razzle-dazzle, just steady fundamentals. But amid the celebration, a less glamorous guest knocks: taxation. And with profits soaring, so comes the usual refrain – 'They're making money, continue taxing and why not tax them more?' A simple logic, perhaps. But dangerously simplistic. It is precisely during these profitable upswings that the industry's tax framework should come under the microscope – not as a protest, but as an act of prudence. After all, it's far easier to make reforms when the coffers are full and tempers calm. If we wait until the next market downturn, the appetite for reform may vanish just when the sector needs support the most. That's why I keep returning to this point: it's not about taxing more or less, but about using this window of prosperity to build the foundations for long-term resilience and competitiveness – again and again. Oil Palm's Exclusive and Unique Taxes Ever wondered what Malaysian oil palm growers really pay in taxes? The answer is as layered as the oil palm fruit bunch itself. Compared to sectors like manufacturing, plantation businesses face a heavier tax structure on top of income tax, they also pay MPOB cess, windfall levy (WPL) and state sales taxes (SST). While manufacturers may have higher recruitment costs, they enjoy generous tax incentives and allowances – benefits largely unavailable to planters. Fortunately, the Malaysian Estate Owners' Association (MEOA) has taken on the painstaking task of navigating this fiscal jungle. Year after year, their spreadsheets quietly lay bare a sobering reality: the tax burden on planters is not only heavy, but often complex and, at times, outright lopsided. So, here's my attempt to break it down – for public consumption, minus the jargon. At the heart of the analysis is a deceptively straightforward template. The MEOA estimates tax exposure using national and regional crude palm oil (CPO) and crude palm kernel oil (CPKO) production data from MPOB, overlays it with MPOB's average product prices and yields, and deducts estimated cost of production from the industry. It's a spreadsheet that makes Microsoft Excel sweat – and yet, it offers invaluable insight into what oil palm growers really fork out every year. For the year 2024, Malaysia produced 19.34 million tonnes of CPO and 4.56 million tonnes of palm kernel, from which 2.14 million tonnes of CPKO were extracted. Production was spread across the regions with 56 percent coming from Peninsular Malaysia, and Sabah and Sarawak each contributing 22 percent. The MPOB average prices realised were RM4,179 per tonne for CPO, RM2,645 for palm kernel, and RM5,475 for CPKO. Cost of production per tonne of CPO based from oil palm growers and analysts which includes head office and replanting overheads was estimated at RM2,675 in Peninsular Malaysia, RM3,050 in Sabah and RM3,320 in Sarawak. From this, pre-tax profits could be estimated, setting the stage for calculating the full tax burden. Oil palm growers navigate a thicket of taxes at both Federal and State levels – MPOB cess, WPL, SST and the usual income tax. Smallholders under 40 hectares dodge the WPL, prompting a cheeky industry tip: got 41 hectares? Sell one. But the tax trail doesn't end there. Local councils and agencies pile on property assessments, land cesses and miscellaneous fees. It's a fiscal jungle – and planters are footing the bill at every twist and turn. The first layer is the MPOB Cess, fixed at RM16 per metric tonne of CPO and CPKO produced since March 2021. This is used to fund MPOB's core operations – from research and development to licensing, enforcement, marketing/promotion under MPOC and certification under MSPO, and environmental conservation through the MPOGCF. Based on 2024's production, this translated to RM344 million in total cess collected. Because national production has hovered below 20 million tonnes for several years, cess revenue remains relatively fixed between RM330 to RM360 million annually – with each RM1 of cess translating into roughly RM20 million. Next comes the Windfall Profit Levy (WPL) – a tax that continues to provoke debate. It is imposed when CPO prices exceed RM3,000 per tonne in Peninsular Malaysia and RM3,500 in Sabah and Sarawak. (Note: Effective 1 Jan 2025, the price threshold has been revised upwards by RM150 to RM3,150 for Peninsular Malaysia and RM3,650 pmt for Sabah/Sarawak) . While smallholders are exempt, large and mid-sized growers have no such luck. The tax is charged per metric tonne of fresh fruit bunches (FFB), based on the assumption that high CPO prices equal high grower profits – a notion that oversimplifies the variables involved in plantation economics and selling mechanism. For 2024, WPL collections were estimated at RM1.71 billion. For context, the WPL of previous years reported at RM1.95 billion in 2021, RM3.02 billion in 2022, and RM920 million in 2023 by MOF – numbers that suggest significant volatility set against the CPO prices. The WPL has long been a thorn in the side of oil palm growers, who argue that it's both unfair and biased. It assumes profits are 'extraordinary' without accounting for the very real cost pressures and operational complexities growers face. Worse, it singles out one sector – oil palm – while leaving some other profit-blessed sectors untouched. If windfalls must be taxed, then let the net be cast fairly across all sectors. For growers in East Malaysia, the State Sales Tax (SST) adds yet another fiscal layer. In Sabah, a 7.5 percent SST is imposed on CPO prices above RM1,000 per tonne. Sarawak adopts a tiered model – 2.5 percent above RM1,000, and 5 percent above RM1,500 – applied to both CPO and CPKO. In 2024, Sabah collected RM1.357 billion and Sarawak RM886 million under this tax. While these are constitutionally legitimate state revenues, they undeniably deepen the cost divide between East and West Malaysian growers. What's more troubling is the price thresholds themselves. With RM1,000 and RM1,500 now sitting well below today's production costs, these benchmarks are relics of a bygone era. If fairness is the goal, the least the taxmen could do is bring the thresholds into the 21st century. Then comes income tax – the most familiar of the lot. In Malaysia, corporate tax is set at 24 percent, but SMEs enjoy tiered rates: 15 percent on the first RM150,000 of chargeable income, 17 percent on the next RM450,000, and 24 percent above RM600,000. To simplify the modelling, MEOA assumed a flat 22 percent effective rate – a reasonable national average reflecting the spread of small, medium and large enterprises. Based on estimated profits, this translated to RM6.3 billion in income tax from Peninsular growers, RM2.996 billion from Sabah, and RM2.268 billion from Sarawak – for a grand total of RM7.158 billion in income tax from growers alone. So that's the grand total – RM11.564 billion in taxes. But what does that number actually mean, beyond making accountants and taxmen smile? Here's a relatable yardstick: the cost of a government hospital bed is said to be around RM1.2 million. That means a hundred-bed hospital costs about RM120 million. At RM11.5 billion, oil palm growers could on paper fund nearly 100 such hospitals in a single year. Given that Malaysia had 148 government hospitals in 2022, the industry's tax contribution alone could double that number in just 18 months! That is the simple yardstick of the infra-opportunity with the amount of taxes from oil palm growers. And there's more. East Malaysian growers face a double burden – not just from taxes, but also from geography. With limited downstream refining capacity in Sabah and Sarawak, CPO and PK produced in East Malaysia are sold at a discount compared to prices in Peninsular Malaysia. Buyers typically factor in freight costs when purchasing from East Malaysia, leading to lower prices for producers. The discount typically ranges from RM50 to RM80 pmt, a quiet but persistent cost that erodes profit margins – rarely making headlines, but deeply felt on the ground. Looking at the broader tax-to-profit ratios reveals more telling truths. When total taxes of cess, WPL, SST and income tax are compared to business profits (before WPL and SST), the national average tax burden stands at 31.6 percent. But it's far from evenly distributed. Growers in Peninsular Malaysia shoulder about 26.4 percent, while their peers in Sabah and Sarawak face 40.4 and 42.4 percent respectively. Perhaps, one can begin to understand why growers are hesitant to reinvest in replanting today amid the good process and high cost of good replanting averaging at RM25,000 or more per hectare to maturity. It will require high capital expenditure and incurs around three years of non-revenue bearing gestation. When margins are already taxed to the hilt, losing the high price opportunity and taking on such long-term investment becomes a daunting gamble. This is not a critique against paying fair taxes. But it is a call to look at the upstream sector with nuance. The current tax structure is heavily weighted at the growing end, the most labour-intensive, cost-volatile and price-taking exposed part of the entire value chain. However, it should be noted that with current high palm product prices, the downstream segment of the supply chain is also under tremendous pressure, with margins shrinking to single digits. If the goal is to keep Malaysia's palm oil industry productive, resilient and globally competitive, we must ask whether the taxation model enables that or slowly taxes it into inertia. Rethinking the Billions Make no mistake: RM11.564 billion isn't loose change. But the more urgent question is – what's being done with it? Is it reinvested into the very sector that sustains it, or simply chalked up as yet another windfall, while growers – the hands that feed the nation's palm oil pride – struggle to replant, modernise, or even survive? It's time to shift the national conversation from simply collecting taxes to collaborating on smarter policies that balance fair taxation with long-term resilience. Sure, prices are strong and the sector is cash-positive but costs are rising too: labour, logistics, compliance, you name it. Yields are flat, unit costs are rising, and margins are under pressure. Even worse? Crop losses still haunt the fields. Across Malaysia, crop ripen – only to rot. Not due to tree shortage, but harvester shortage. Every bunch that falls uncollected is not just wasted produce – it's lost income, lost profit- and yes, lost taxes. This sector doesn't need to be taxed into fatigue. It needs to be empowered – to replant, modernise, mechanise. These aren't luxuries. They're survival strategies. Oil palm isn't some fading sunset commodity – it's a sunrise industry being slowly choked by short-termism. We must resist the temptation of quick fiscal wins and commit to the long game. You simply can't keep harvesting fruit while ignoring the roots – eventually, there'll be nothing left. If we're not careful, Malaysia's golden goose won't stop laying eggs – it'll be taxed into extinction. The solution? Smarter, shared-responsibility tax models that spread the load fairly and reinvest wisely. There's no avoiding short-term discomfort. But if the burden is shared, the long-term gain will be all the sweeter and far more sustainable. Replanting: A Litmus Test for Shared Responsibility Oil palms, like people, don't age in reverse. Past 25 years, they shoot skyward, becoming near impossible to harvest. Across Malaysia, 1.4 million hectares are past their prime, quietly dragging down yields and ballooning costs. In Sabah alone, one in three palms is over 20 years old. Yet with CPO prices flying high, many growers delay the inevitable, squeezing out the last drops of revenue and leaving replanting 'for later.' The result? A classic Catch-22. Replanting now hurts short-term profits. But not replanting ensures long-term pain – dwindling yields, rising costs, and underutilised mills. Meanwhile, both government and growers are locked in a fiscal standoff: the former needing revenue, the latter clinging to margins. It's why replanting is the perfect case study of how taxation can evolve into a model of shared responsibility. What's needed isn't grand declarations, but pragmatic execution: a replanting fund seeded by a small, temporary cess during boom periods, matched by windfall tax allocations and safeguarded by transparency. It's not popular, but it's fairer than letting the burden fall unevenly. Let's be clear: Malaysia needs to replant 4–5% of its area each year just to maintain a healthy age profile. We're doing barely half that. A phased, structured push – call it then 'pragmatic replanting' – would give the entire supply chain time to adjust, build up nurseries, contractors and manpower, and cushion the economic shock. Support must go beyond just smallholders. Mid-sized and large estates could be offered soft loans tied to minimum replanting targets – no free lunch, but enough fiscal grease to get the wheels moving. Reinvestment allowances, too, could ease the capital load. This is not about throwing money around. It's about growing smarter. The tax system should support those willing to invest in tomorrow – not penalise them for acting today. Because here's the truth: if we wait for the 'perfect' time, that time will never come. And by the time it does, the industry might be too old and too tired to recover. Replanting is not a cost. It's an investment. And like all good investments, it needs planning, partnership, and policy that thinks beyond the next financial quarter. Time to Rethink, Not Retrench Let's be clear: this isn't a rallying cry to dodge taxes. Oil palm growers have been paying their dues and paying plenty. The issue isn't whether the industry should contribute to nation-building. It already does, and handsomely. The real question is whether our current tax system is pulling in the right direction, or dragging the industry down in a longer term just when it needs to climb higher. Malaysia's palm oil sector is no ordinary industry. It feeds millions, anchors rural livelihoods, earns crucial foreign exchange and provides jobs in regions where few alternatives exist. Yet, it remains the workhorse that's taxed like a thoroughbred. From windfall levies to state sales taxes, from cess to corporate tax, planters don't just bear fruit – they bear the burden of a fiscal framework that too often overlooks nuance. Taxing success is not a crime. But taxing without strategy? That's a missed opportunity. Because here's the rub: today's profits, while welcome, are not permanent. Palm oil is a commodity – cyclical, exposed to global shocks and increasingly scrutinised for sustainability. The cost of labour, logistics, compliance and climate mitigation is rising. The yield potential of aging palms is falling. Mechanisation is urgent but capital-intensive. And replanting – the sector's lifeline – often means at least three years of zero income and massive upfront costs. In this context, a tax regime that treats all players the same, regardless of their size, location, or role in the value chain, is not just blunt – it's damaging. Smallholders with less than 40 hectares may escape the windfall levy, but many mid-sized growers – too big to be exempt, too small to absorb the shock – are caught in the squeeze. What's needed isn't leniency – it's literacy. Fiscal literacy that recognises the differences between boom and bust, between East and West Malaysia, between growers and refiners, between today's earnings and tomorrow's investments. We need a smarter, more adaptive tax framework – one that aligns with national priorities like food security, rural upliftment, mechanisation and ESG commitments. One that rewards efficiency, incentivises replanting, and supports those investing in sustainability rather than punishing them for surviving success. Because let's face it – you can't keep harvesting fruit if you've taxed the tree into fatigue. If growers don't replant, there'll be no yield in the future. If margins are eroded by taxation, modernisation will stall. And if every ringgit earned is seen as fair game for the taxman, it won't be long before this golden goose lays no more eggs. So yes, many planters are doing well now. But 'now' is no substitute for foresight. We must resist the temptation to view CPO prices in isolation, and instead ask: are we future-proofing an industry that still feeds, fuels and funds so much of Malaysia? The conversation must happen before the next crisis – not during it. We must move from short-term extraction to long-term enablement. It's not about paying less. It's about paying smart. A rethink is overdue. A retrenchment would be a tragedy.
Barnama
a day ago
- Barnama
RHB IB Keeps Malaysia's 2025 GDP Growth Forecast At 4.2 Pct, With Upside To 4.4 Pct
BUSINESS KUALA LUMPUR, Aug 15 (Bernama) -- RHB Investment Bank Bhd (RHB IB) has maintained its forecast for Malaysia's 2025 gross domestic product (GDP) growth at 4.2 per cent, with an upside potential of up to 4.4 per cent. 'Growth in the second half of 2025 (2H 2025) is expected to moderate to 4.2 per cent (1H 2025: 4.4 per cent), as front-loading activities dissipate and the impact of tariffs gradually sets in. 'Nevertheless, several factors should support the outlook; clearer guidance on United States' (US) tariff rates, easing US–China trade tensions, domestic stimulus measures, and robust consumer and investment spending,' it said in a note today. The investment bank said that the recent cut in US reciprocal tariffs on Malaysia (to 19 per cent from 25 per cent) and the extension of the US–China trade truce to Nov 10 should provide short-term relief and lift manufacturing sentiment. 'Domestically, the RM2.0 billion Merdeka cash handouts are expected to give a modest boost to consumption, adding an estimated 0.2 percentage point to GDP for 2025, based on a 0.5 marginal propensity to consume and Sales and Service Tax (SST) rates of 5–10 per cent,' it said. RHB IB said that its forecast already incorporates downside risks, with the revised US tariff structure estimated to shave up to 0.43 percentage point from the earlier 4.5 per cent projection. 'We remain vigilant to potential pressures on trade and manufacturing from changes in US tariff policies and the possible introduction of sector-specific measures, particularly on semiconductors,' it said. While external developments warrant a cautious outlook, it said Malaysia's domestic economy continues to show resilience, supported by robust consumer spending and steady investment activity. 'Strategic measures under the MADANI Economy framework — including the National Energy Transition Roadmap and the New Industrial Master Plan 2030 — are set to stimulate investment flows over the medium term,' it said, adding that certain domestically oriented industries remain relatively insulated from global uncertainties.
Malaysian Reserve
a day ago
- Malaysian Reserve
Johor Plantations issues RM200m sustainability sukuk
JOHOR Plantations Group Bhd (JPG) has issued its inaugural sustainability sukuk wakalah-IMTN worth RM200 million under its RM3 billion sukuk wakalah programmes. The 10-year notes, carrying a 3.70% periodic distribution rate, were oversubscribed by 4.93 times, reflecting strong investor confidence. Proceeds will fund shariah-compliant capital expenditure for JPG's integrated sustainable palm oil complex. Maybank IB is the principal adviser, with CIMB IB and Maybank IB as joint lead arrangers.
