Trimming the Indonesian palm oil export tax cap by a maximum of 5 percent, a move widely expected by market players, will do little to stop the current distortion of flow to the global market, an industry association said on Thursday.
In late July, an industry ministry official said Indonesia may cap its maximum export tax for the edible oil to 20 percent from 25 percent.
The existing tax system, aimed at securing domestic supply and reducing volatility in cooking oil prices, allows the government to impose tax rates from 1.5 to 25 percent.
“The [yearly] export volume from Indonesia does not depend on the export tax,” said Joko Supriyono, secretary general of the Indonesian Palm Oil Association (Gapki).
“But if you talk month by month, the export tax could distort the market.
“When buyers know that next month, the export tax is high, then ... they stop buying or delay to buy.”
Earlier this year, top industry analyst James Fry also said Indonesia’s palm oil export tax was distorting flows to the market.
At present, trade ministry and industry officials meet every month to decide the tax rate for the following month, using the average spot crude palm oil prices in Rotterdam in the receding 30 days as a reference price.
Market talk among traders of palm oil, used in products such as food, cosmetics, tires and biofuels, is awash with speculation that the government of Southeast Asia’s largest economy will announce changes to the tax after the Ramadan fasting season this month.
Traders say that a top rate of 20 or 22.5 percent is on the cards.
The government had completed the final draft of the export tax changes, which is expected to be signed by the ministry of finance within one month, Supriyono said.
“Maybe the maximum will be 20 percent,” Supriyono said. “We are still not comfortable, even with the new structure of the export [tax] because they just change the minimum threshold and maximum tariff -- the structure itself is not changed.
“We proposed that they implement a flat rate... 3-5 percent depending on the CPO price,” he said, adding that farmers say they are less competitive than in other producing countries.
Earlier this week, the trade ministry said it will maintain the export tax for crude palm oil for September at 15 percent.
Exporters had paid lower tax of between 3.0 and 4.5 percent until August last year. Prices began to pick up from last September as erratic weather hit production in Malaysia and Indonesia.
Analysts and traders say that investors holding on to Indonesian palm oil stocks in anticipation of any changes to the export tax, could flood a well-supplied market and further pressure prices already weakened by global economic fears.
“Most of the plantation companies don’t have big storage, so they have to sell it immediately,” Supriyono said.
In-line with previous forecasts, Supriyono sees Indonesian palm oil exports at about 17 million tons this year, with overall production at 23 million tons.