Glove industry to pay higher corporate taxes, says no to windfall tax

MALAYSIAN glovemakers are expected to pay a total of RM2.4 billion in corporate taxes in 2020, a four-time increase from the previous year and industry players argue a potential windfall tax in the upcoming Budget 2021 could be a blow.

The Malaysian Rubber Glove Manufacturers Association (Margma) president Dr Supramaniam Shanmugam said glove companies are estimated to rake in about RM30 billion in revenue this year, which is 50% higher or RM10 billion more than last year’s figure of about RM20 billion.

With a greater profit margin in 2020 due to higher average selling prices (ASPs) of gloves, Supramaniam said the total amount of corporate tax the industry pays this year is expected to jump 400% to RM2.4 billion from an estimated RM600 million in 2019.

“We view a windfall tax as unnecessary. It would be a double blow for the industry because, by virtue of having much bigger revenue and profit in 2020, we will be paying a bigger quantum of corporate tax to the government,” Supramaniam told The Malaysian Reserve.

He said a windfall tax would deter glove companies’ expansion plans which are needed to catch up with the growing demand from across the world.

He added that Malaysia risks losing the opportunity to grow and capture market share to other countries that are eager to capitalise on the rise in demand and health awareness.

“The government should allow us to reinvest our profits for expansion. We would create more jobs not only in the glove industries but supporting industries such as chemical supply, logistics and machinery.

“A windfall tax would slow down the expansion of the glove industry, which then means that we could lose this opportunity to other countries like Thailand, Indonesia, China and Vietnam.

“These countries are all hungry to take up the capacity that Malaysia could not and we stand to lose on our export earnings,” Supramaniam said.

He added that the association is discussing with the government and appeals not to introduce a windfall tax.

Glove manufacturers’ revenue and profit have skyrocketed by triple digits in percentage as a result of soaring global demand amid the Covid-19 pandemic.

Top Glove Corp Bhd’s net profit soared 417% year-on-year (YoY) in the financial year 2020 (FY20) to RM1.87 billion, while revenue jumped to RM7.24 billion from RM4.8 billion in FY19 as demand for rubber gloves spiked and selling prices increased.

For the fourth quarter ended Aug 31, 2020 (4QFY20), its net profit stood at RM1.29 billion compared to RM74.16 million last year, while revenue was RM3.1 billion versus RM1.18 billion previously.

The rise in its share price saw Top Glove becoming the second-most valuable company on Bursa Malaysia after Malayan Banking Bhd.

Hartalega Holdings Bhd posted a 424.5% increase in net profit to RM545 million in 2QFY21 as revenue soared by 89.7% YoY to RM1.35 billion, driven by higher ASPs and capacity.

Supermax Corp Bhd posted a net profit of RM789.5 million in 1QFY21, nearly a 32-fold increment from the RM24.7 million profit it made in the same period last year for the same reasons. Its revenue increased 265.6% YoY to RM1.35 billion in 1QFY21.

Supermax said demand continues to increase and it is in an oversold position, along with ASPs.

The fear of a windfall tax has seen glovemakers’ share price falling ahead of the Budget 2021 announcement this Friday as investors fear such a move would negatively impact the earnings of the companies.

Inter-Pacific Securities Sdn Bhd head of research Victor Wan said a windfall tax on the glove sector, if it is introduced, may be a multi-tier system similar to that used on the plantation sector in the past.

Wan, however, said it is difficult to gauge the potential of a windfall tax on the glove sector at this time. He added that another layer of tax would be negative for the companies.

Malacca Securities Sdn Bhd equity research analyst Kenneth Leong said the introduction of a windfall tax on the sector may not take place in the near term.

He concurred with Supramaniam that higher net profits booked by glovemakers will translate into higher corporate tax bills.

CGS-CIMB Securities Sdn Bhd analyst Ivy Ng Lee Fang, stated in a report, talks of a potential tax on rubber glovemakers may have contributed to lower trading in glove counters, which had been dominating market trading volumes and values so far this year.

Glove stocks closed mixed yesterday as investors bought into some and sold others.

Top Glove ended 0.83% or seven sen lower at RM8.32, while Hartalega retreated 0.45% or eight sen to RM17.76 yesterday.

Kossan Rubber Industries Bhd declined 2.05% or 15 sen to RM7.15, but Supermax rose 0.45% or four sen to RM8.95.

Smaller counters like Comfort Gloves Bhd, Careplus Group Bhd and Rubberex Corp (M) Bhd all rose by eight sen, 11 sen and 15 sen respectively to RM3.84, RM3.19 and RM2.20 accordingly.

Read more at The Malaysian Reserve