Budget 2025 a net negative for plantations

KUCHING (Oct 21): Analysts believe Budget 2025 is a net negative for the plantations sector as the adverse changes (minimum wage, export taxes, foreign worker levy, Employee Provident Fund (EPF) for foreign workers) offsets the small positive adjustment made to windfall tax.

Effective 1 January 1, 2025, the windfall tax threshold will be raised by RM150 per tonne to RM3,150 per tonne for Peninsular Malaysia and to RM3,650 per tonne for East Malaysia.

The rate remains unchanged at 15 per cent. Analysts with RHB Investment Bank Bhd (RHB Research) estimate the impact to earnings to be between one and four per cent.

“Effective November 1, 2024, the government will add more thresholds for crude palm oil (CPO) export taxes, bringing it up to RM4,050 from RM3,450 per tonne,” it said in its analysis.

“Previously the maximum rate was eight per cent, but this is now raised to 10 per cent. With this change, net impact for planters (export tax pls windfall levy) would be RM4 to RM23 per tonne in revenue but less by RM16 to RM68 per tonne in revenue.

“This change, however, raises Malaysia s competitiveness versus Indonesia.”

Meanwhile, in Budget 2025, the minimum wage raised to RM1,700, from RM1,500 effective February 1, 2025.

Based on RHB Research’s sensitivity analysis, it estimates that every 10 per cent (RM150 per month) hike would impact earnings of the companies under its overage by minus two to minus five per cent with the exception of FGV, which has a lower earnings base.

“As the increase in minimum wage is RM200 per tonne, the impact would be just slightly higher in the region of minus three to six per cent per annum.

“The government mentioned plans to make it compulsory for all workers who are non-citizens to also contribute to the EPF to be implemented in phases.”

No timing was given nor details on this proposal. Assuming this is implemented, RHB Research believe it will be a disincentive for workers to come to Malaysia.

Assuming the contribution is 11 per cent, workers would be taking home only RM1,513 based on the revised RM1,700 minimum wage. In addition, plantation companies would have to contribute EPF for workers, which based on the current contribution rate is 13 per cent for wages below RM5,000 per month.

“Assuming the minimum wage of RM1,700, this means an additional cost of RM221 per month per worker. This will be negative to earnings.

“Meanwhile, the multi-tiered levy in early 2025 is aimed at reducing the dependency on foreign workers, with proceeds to be channelled back to the industry for automation and mechanisation.

“While there are no details yet, it is possible planters could be exempted given the difficulty in hiring locals to work in this job.

“In any case, we estimate that every 10 per cent hike in foreign worker levy would impact earnings by minus one and two per cent per annum.”