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Indonesian govt plans to cut palm oil export tax to counter Malaysia

Publication Date : 12-01-2013


Indonesia, the world’s top palm oil producer, may slash export taxes on crude palm oil (CPO) to compete with Malaysia, which recently lowered its export tax on CPO to zero per cent.

Trade Minister Gita Wirjawan said yesterday that the tax reduction was needed to generate a competitive edge, but that it should still help spur growth in the downstream industry,

“Ideally, it should be zero to allow us to compete with the rival, which applies zero per cent. But will it support the development of our downstream industry?” Gita told reporters at his office in Jakarta. Gita added that he had consulted with Industry Minister MS Hidayat over the competitiveness issue, and agreed to take the necessary measure.

Earlier this week, the Indonesian Palm Oil Association (Gapki) asked the government to lower the export tax on crude palm oil temporarily as a quick response to Malaysia’s move of reducing its export tax to zero per cent this month.

The measure will help local producers manage the abundant supply until March, when local production is expected to moderate, according to Gapki.

Last October, Malaysia announced a cut in palm oil export taxes to between 4.5 per cent and 8.5 per cent from 23 per cent starting January to decrease local supply.

The tariffs apply when the price of palm oil exceeds the threshold of 2,250 ringgit (US$745). The tariff is zero per cent this month as the price fell below the threshold.

Malaysia’s move is a response to Indonesia’s new tax regime launched in 2011, which slashed the export tax on refined palm oil products from 25 per cent to 10 per cent, to foster growth in the processing and refining industry.

The new tax rule complements a progressive export tax on palm oil that begins when the commodity’s price is valued above US$750 per ton. Exporters should pay a 7.5 per cent tax when the price goes beyond US$750 per ton, and there is a 1.5 per cent increase for every US$50 rise in the price from the threshold.

Indonesian processors and refiners have benefited from the new tax structure, with the industry aiming to push up shares of refined products to 60 per cent this year from 58 per cent last year.

Meanwhile, Malaysian downstream businesses have been significantly impacted by Indonesia’s rule as the local supply cannot be absorbed domestically due to its limited refining capacity, while a higher export tax on crude palm oil erodes its competitiveness against Indonesia.

In the near future, Trade Ministry officials will hold a meeting with related stakeholders to formulate the change to underline the balance between the development of the downstream industry and to boost competitiveness of palm oil in the overseas market, Gita said.

Gapki executive director Fadhil Hasan said on the same day that in the long-term, the government needed to lower the export tax to avert a decline in market share, particularly in certain key buyers of crude palm oil, such as India and Pakistan, and to maintain competitiveness with Malaysia.

“As the export tax is an instrument used to boost the downstream industry, we propose that the government charges a zero per cent export tax on refined products,” he said, adding that the cut in export tax on refined products should also be accompanied by the cut in export tax for CPO. He said that the tax rate for CPO should be 5 per cent, at present it is 7.5 per cent.

Gapki recently estimated that exports could surge by 10.19 per cent to 20 million tons this year on the back of greater demand, including for refined products, from key markets like India, China Pakistan and Bangladesh.

Meanwhile, palm oil posted its biggest weekly loss since November as record reserves and declining exports in Malaysia, the second-largest producer, prompted analysts to push back forecasts for a price rebound during the low-output season.

The contract for a March delivery lost 0.9 per cent to close at 2,366 ringgit (US$783) a metric ton on the Malaysia Derivatives Exchange in Kuala Lumpur. Futures, which dropped 1 per cent yesterday after the inventory data was released, fell by 4.1 per cent this week, the most since the five days ending November 9.


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