Cocoa producers urge govt to drop VAT

The Jakarta Post, Jakarta

The government target to increase the export value of the country's cocoa and cocoa products by 25 percent this year can only be achieved if the existing value-added tax (VAT) on the commodity is scrapped, says an industry leader.

Zulhefy Sikumbang, chairman of the Indonesian Cocoa Association (Askindo) said on Thursday the current 10 percent VAT imposed on cocoa farmers when selling their output to the local processing industry had prompted the farmers to export the commodity in the form of unprocessed beans.

He said that this in turn had caused a shortage of raw materials for the processing industry, forcing some of them out of business.

The Indonesian Cocoa Industry Association (Apikci) said from 12 factories listed in the association, only three were still operating.

"The value of cocoa will be higher in the international market if it is processed first," Zulhefy told The Jakarta Post.

He predicted that with the tax incentive, the local cocoa industry could enjoy an export revenue of between US$900 million to $1.2 billion per year.

The government revealed on Wednesday it has selected 15 priority export products to achieve this year's non-oil and gas export growth target of 7 percent.

Cocoa is among the priority products. The government set cocoa and cocoa products exports to increase by 25 percent from US$629 million in 2003 to $789 million for this year.

To help achieve the target, the government is planning to scrap the VAT imposed on certain raw materials like cocoa.

But Zulhefy feared that the plan might not be realized in the future when a new government is formed.

"New government means new policy, so it might not materialize," he said.

He also said that processing cocoa beans prior to export was necessary because Indonesia's cocoa beans were of low quality. Some 90 percent of Indonesia's cocoa production is low quality unfermented beans.

Indonesia is the third largest cocoa exporter after the Ivory Coast and Ghana with total cocoa plantation area of 776,900 hectares. Indonesia's cocoa accounts to around 11 percent of global demand which stand at 3 million tons per annum.

Last year, Indonesia's cocoa output reached 433,411 tons. Around 80 percent of cocoa export goes to Southeast Asian countries.

Previously, Askindo said cocoa production could decline by 7.7 percent this year due to the expected drought in the second quarter of the year.