10 hours ago
Sales tax may pressure planters' competitiveness
PETALING JAYA: The competitiveness of the local palm oil industry will likely be eroded by the implementation of the expanded sales and service tax in July, analysts say.
The tax will increase raw material costs, although some of the additional cost may be passed on to buyers, says CIMB Research.
Major listed plantation companies with palm oil operations in Malaysia include SD Guthrie Bhd , FGV Holdings Bhd , Kuala Lumpur Kepong Bhd , IOI Corp Bhd and Wilmar International Ltd.
'Overall, we are slightly negative on the indicative 5% sales tax on crude palm kernel oil for Malaysian palm oil players, although the industry may seek a government waiver if the tax undermines local competitiveness against Indonesia,' said CIMB Research in a report yesterday.
The research house said it understands from the Malaysian Palm Oil Association and planters that fresh fruit bunches (FFB) will be exempted from the 5% sales tax, despite being listed among taxable goods.
'This is because the sales tax applies only to the manufacturing sector, and FFB is classified as a locally harvested raw material intended for further processing rather than a manufactured product,' CIMB Research said.
However, palm kernel oil, refined, bleached and deodorised palm kernel oil and palm kernel shell have been reclassified from tax-exempt goods to those subject to a 5% sales tax under the Sales Tax Order 2025.
It remains unclear whether the industry will seek exemptions for these products, added the research house.
Meanwhile, CIMB Research said the US Environmental Protection Agency's (EPA) proposal for 5.61 billion gallons of biodiesel under a mandate for next year is supportive of demand for edible oil and crude palm oil (CPO) prices, as the mandate will help sustain US consumption of edible oils.
'We maintain our CPO price forecast of RM4,200 per tonne for this year and reiterate our sector top picks, IOI and Hap Seng Plantations Holdings Bhd ,' said the research house.
For next year, the EPA has set a target of 7.12 billion biomass-based diesel renewable identification numbers (RINs), which is expected to translate into 5.61 billion gallons of actual biodiesel blended that year.
'This target is expressed in RINs, in line with the EPA's broader objective to limit the number of RINs generated from imported biofuels,' CIMB Research said.
As a result, the EPA now projects that each gallon of biomass-based diesel will generate 1.27 RINs in 2026 and 1.28 RINs in 2027, down from the previous estimate of 1.6 RINs.
In comparison, the 2025 biomass-based diesel volume mandate stood at just 3.35 billion gallons, a level widely criticised by the industry as inadequate.
Notably, the 2026 blending target of 5.61 billion gallons for biomass-based diesel volume exceeds the 5.25 billion gallons requested by the industry.
'We are positive on the proposed 2026 mandate, as fulfilling the 5.61 billion gallons or 19.2 million tonnes of biodiesel would support the use of edible oils as feedstock to meet the US biodiesel requirement. For context, US biodiesel production last year stood at around 16 million tonnes.'
The final rule for the Renewable Fuel Standard (RFS) targets in the United States is expected to be published by the end of this year.
Under the RFS, oil refiners are required to either blend substantial volumes of biofuels into the US fuel supply or purchase compliance credits known as RINs from others who exceed their blending obligations.
Small refiners may apply for exemptions if they can demonstrate that complying with the mandate would cause undue economic hardship. The proposal reflects a significant shift in biomass-based diesel requirements, noted CIMB Research.
