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NEWS UPDATES Asean Affairs    5 October 2012

Indonesia to keep palm oil tax amid rival Malaysia's cut plan


Indonesia, the world's largest palm oil producer, will still maintain its current palm oil export tax in spite of a potential export tax cut by its top competitor Malaysia, to further boost the development of the local downstream industry, Deputy Trade Minister Bayu Krisnamurthi says.

"Business players expect a consistent [government's] policy. We must anticipate the market, but at the same time, must remain consistent," Krisnamurthi said yesterday in Jakarta.

The government would need to monitor three-year average prices before changing its export tax policy, instead of reacting to a single price drop, he added.

Malaysia's Plantations Industries and Commodities Ministry has recently proposed to its cabinet a plan to slash its palm oil export tax to between 8 per cent and 10 per cent from 23 per cent at present, to push up its exports.

This measure is a response to counter Indonesia's tax regime that was adjusted late last year, which lowered its export tax on refined palm oil products from 25 per cent to 10 per cent.

This new tax structure complements a progressive tax on the export of crude palm oil (CPO), which starts at 22.5 per cent whenever the price of the commodity goes beyond US$750 per ton. Exporters are required to pay an export tax of 1.5 per cent for every $50 increase in the price from the threshold.

The government said that this structure had created incentives for players in the palm oil refinery industry, thus boosting Indonesia's competitiveness against rival Malaysia.

Krisnamurthi said that this boost was proven in the data of monthly exports, according to Krisnamurthi. "There has been a trend that downstream palm oil products will continue to rise higher than the crude oil," he said.

Trade statistics shows that from January to July this year, exports of CPO dropped by 16.93 per cent to 3.67 million tonnes by volume from a year earlier, while exports of refined palm oil rose by 72.14 per cent to 7.62 million tonnes.

In line with this, value of CPO exports also shrank by 25 per cent to $3.63 billion during the designated period, compared to refined palm oil exports that climbed by 53.20 per cent to $7.81 billion.

Indonesian Palm Oil Producers Association (Gapki) executive director Fadhil Hasan said that the government should soon assess the impact of the Malaysia's export cut after it was issued.

"Whenever necessary, the government should review the tax policy to side with local producers," he said.

The market has responded to Malaysia's plan, palm oil prices climbed for the second day yesterday, Bloomberg reported.

The December delivery contract rose as much as 2.3 per cent to 2,404 ringgit ($786) per tonne on the Malaysia Derivatives Exchange, and was at 2,390 ringgit at 4:14 p.m. Futures reversed an earlier 1.3 per cent decline and are set for a 6.1 per cent drop this week.

Earlier, due to rising stockpiles, palm oil futures have lost more than a quarter since the beginning of this year, and this condition is worsened by the euro debt crisis that pushed down demand.

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