Wed, 06 Feb 2008
Jakarta (ANTARA News) - Indonesia's latest move to hike the crude palm oil (CPO) export tax rate to a maximum of 25 percent from 10 percent previously could boomerang on the economy and even hurt local CPO producers, industry officials said Tuesday.

They said the tax hike would only push the global CPO price yet still fail to stabilize cooking oil prices in the domestic market.

What is worse for the local industry is that the move could benefit its strongest rival, Malaysia.

"The impact is clear. As we have seen today, the CPO price has soared to a fresh record high," Derom Bangun, chairman of the Indonesian Palm Oil Producers Association (GAPKI), told Thomson Financial.

He said the policy could spark fears that Indonesian CPO exports may fall when it may not necessarily be the case, as the domestic capacity to absorb the output is limited.

According a Finance Minister Decree which takes effect on February 7, the CPO export tax will be raised to 15 percent if the CPO export reference price rises to 1,100 dollars a ton or higher, but no more than 1,200 dollars per ton.

The Trade Ministry normally sets the CPO reference price for the coming month based on the average CPO price in Rotterdam over the previous month.

For February, the government has imposed a 10 percent tax with a reference price of 944 dollars a ton.

The government will hike the export tax rate to 20 percent if the reference price ranges from 1,200 dollars to less than 1,300 dollars a ton.

The maximum tax rate of 25 percent is applied when the reference price hits 1,300 dollars.

"At the moment, we could only say that producers have an opportunity loss, because any potential gain from a higher price will be charged with a higher tax," said Tjahyo Dwi Arianto, head of investor relations division at PT Astra Agro.

The question going forward is whether the tax hike will really work to stabilize the domestic cooking oil price, he said.

The government has been using a higher export tax since last June to help stabilize the cooking oil price.

The ministry said it has also removed the value-added tax for branded and non-branded cooking oil.

CPO is commonly used as raw material to produce cooking oil in Indonesia.

Although Indonesia is world's largest CPO producer, it has found it difficult to stabilize the cooking oil price because producers use the global price as the benchmark for CPO selling prices in the domestic market.

"It is not about supply. Indonesia can only absorb about 4 or 4.5 million tons of CPO a year out of the country's output of about 17 million tons (estimated for this year)," Arianto said.



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