Malaysia’s Ministry of Plantation and Commodities has submitted a formal request to the Ministry of Finance (MOF) to exempt two key raw materials—crude palm kernel oil (CPKO) and palm kernel olein oil—from the 5% Sales and Services Tax (SST) recently imposed across the sector. This policy shift reflects a growing recognition that these oils serve primarily as raw inputs for oleochemical manufacturing, rather than being final consumer products.
Deputy Minister Datuk Chan Foong Hin highlighted in Parliament that the SST, expanded in July 2025 to include the palm oil and oleochemical sectors, unfairly burdens raw material stages in the supply chain. He made the case that exempting CPKO and palm kernel olein could reduce operational costs for manufacturers by preventing tax pass-through effects, thereby preserving the competitiveness of downstream processing industries.
Beyond just raw oil products, the ministry is also exploring SST exemptions or relief for critical services essential to the industry’s operations—such as logistics, transportation, and other ancillary functions—to further mitigate cost constraints.
Chan added that while the MOF has conveyed approval for these exemptions verbally—following a July 15 engagement session with major industry stakeholders like the Malaysian Palm Oil Association (MPOA) and the Palm Oil Refiners Association of Malaysia (PORAM)—official written confirmation is still pending.
This strategic move is part of a broader governmental drive to safeguard the sector’s international competitiveness. The ministry is simultaneously advancing initiatives to bolster sustainability and value-added product creation—through mechanisms like the Malaysian Sustainable Palm Oil (MSPO) certification, enhanced supply chain traceability, R&D investment, and trade diplomacy under free trade agreements—including the Malaysia–UAE Comprehensive Economic Partnership and the Malaysia–EFTA Economic Partnership.
Expanding the Context
Historically, Malaysia’s palm oil industry has been subject to various fiscal instruments—including export levies and the Windfall Profit Levy (WPL)—which aim to balance revenue generation with sector resilience. For instance, the WPL, reintroduced in 2008, targets “extraordinary” profits and applies to both crude palm oil (CPO) and fresh fruit bunches (FFB), sometimes accounting for a significant portion of growers’ tax burden.
Meanwhile, concerns have arisen that the imposition of the 5% SST on raw materials such as palm kernel oil could undermine Malaysia’s downstream competitiveness, especially as neighboring countries like Indonesia adjust their export levy structures in support of domestic downstream growth.
Implementation of these tax relief initiatives would complement ongoing efforts to expand into high-value downstream segments, including biofuel and oleochemical production. Notably, Sarawak’s state government is pursuing legal reforms to harness palm oil waste for biofuel and sustainable aviation fuel (SAF) production—highlighting the growing importance of downstream diversification in the sector’s long-term strategy.
