The large-scale development of forest plantation projects in Malaysia, which has fallen short of target, has received a shot in the arm with new tax incentives.
Sarawak Timber Association’s (STA) tax incentives for planted forest development working committee chairman Philip Choo said the new tax incentives, which were tailored for approved forest plantation projects covering both the planting and harvesting periods, would accelerate the planting activities.
The new tax incentives are provided under the Income Tax (Deduction for investment in an approved forest plantation project) Rules 2009 and the Income Tax (Exemption) (No. 10) Order 2009.
These two orders were issued on Nov 23, 2009 and backdated to May 21, 2003. They are effective until Dec 31, 2011.
Choo, who is also STA treasurer, said the investment of a holding company in any approved forest plantation project carried out by its plantation subsidiary could now be deducted for the purpose of determining the adjusted income of the holding company.
“The deduction of investment will start at the beginning of the planting period and subsequently lower the income tax to be paid by the holding company.
“As far as we know, there are no similar tax incentives for any sector of the industry,” he told StarBiz.
The Exemption Order allows the plantation company to offset the full amount of adjusted loss carried forward during the plantation period with only the statutory income derived from the harvesting period until the adjusted loss is fully utilised in ascertaining the aggregrate income for 10 consecutive years for a new forest plantation project and five consecutive years for an expansion of a plantation project.
Choo said the plantation company could claim reinvestment allowance for the approved plantation project and this allowance would be credited through the exempt income account for declaration of dividends. The dividends received by the holding company will not be taxable.
“The previous tax incentives granted were primarily designed for agriculture and manufacturing activities, and are considered inadequate or even non-applicable to forest plantation projects.”
He said the new tax incentives were explained to and well received by Sarawak’s six major timber groups – Rimbunan Hijau group, Samling Global Ltd, WTK Holdings Bhd, Shin Yang Forestry Sdn Bhd, KTS Forest Plantations Sdn Bhd and Ta Ann Holdings Bhd – during a recent STA roadshow.
The six are licensed by the state authorities to reforest the bulk of the 1 million ha (gross area of 2.35 million ha) logged-over areas. They are among 41 active forest plantation licences in Sarawak.
With 1 million ha forest plantation, Sarawak can double the supply of raw materials for its timber processing mills. Sarawak produces about 10.4 million cu m of logs a year, with 60% reserved for local processing industries and the balance exported.
Choo said some 255,000ha of forest plantations had been established in Sarawak as at last year against the target of 500,000ha.
The three main fast-growing commercial tree species planted are acacia (acacia hybrid), kelempayan (neolamarckia cadamba) and binuang (octomeles sumatrana). The establishment cost of the three species is about RM8,200 per ha.
The 255,000ha planted involved over RM2bil investment by forest plantation licencess.
Choo said the long gestation period had hampered the development of forest plantations as it would take between 10 and 15 years for the trees to mature for commercial harvesting.
He said this had resulted in huge initial capital outlay, particularly during the planting period, difficulty in obtaining loans from financial institutions, high recurrent maintenance costs and the long loan repayment period.
Besides, tree plantations were subjected to high degree of risks associated with crop disease, adverse weather conditions and natural disasters, he said.
Choo said an acute labour shortage had also slowed down planting activities. Some 80% of the workers employed in forest plantation projects are Indonesians.
On soft loans from the Federal Government to fund forest plantation projects, Choo said the loans were released progressively based on the area planted on a reimbursement basis. An application for such loan is restricted to 5,000ha each time.
The Plantation Industries and Commodities Ministry earlier estimated that some RM1.1bil was needed to create 150,000ha of forest plantations nationwide from 2006 to 2013.
