Conflicting strategies on CPO tax

JAKARTA (JP): Minister of Forestry and Plantations Muslimin Nasution said on Monday that the government should remove the export tax on crude palm oil (CPO) and its by-products to create a more stable environment for investors.

Meanwhile, Minister of Industry and Trade Rahardi Ramelan said he had proposed that the current 60 percent export tax on CPO be cut to 40 percent beginning next month.

Speaking to journalists at his office, Muslimin said that the export tax on CPO had not only been ineffective in stabilizing domestic cooking oil prices but had also caused uncertainty for traders of the commodity.

"Export taxes on CPO should be removed immediately to regain foreign investors' confidence in opening palm oil plantations here," he said.

The quick changes to the export tax policies -- which was merely a short-term solution -- discourage foreign investors, he said.

"Inconsistency in government regulations, including those on trade in CPO and cooking oil, will kill the palm oil business in the long term because international investors will come to view opening palm oil plantation here as risky," he said.

He said that many international buyers have turned to Malaysia for CPO because dealing with that country poses less risks than does buying from Indonesia.

According to Muslimin, instead of imposing export taxes on CPO, the government could ensure domestic supply of CPO by giving domestic buyers priority.

"I sent my proposal to President B.J. Habibie in December. To ensure a sufficient domestic supply, government and domestic buyers could be given priority in buying CPO with FOB (freight on board) prices," he said.

Muslimin also raised doubts over the integrity of the collection and distribution of the export tax revenues.

"Where did the money collected from the export taxes go? In my calculations, it has reached over Rp 4 trillion during the one year the export tax has been imposed. The money should be returned to farmers or producers as they are the ones who suffer from the high export tax," he said.

Muslimin said the high export taxes on CPO and its byproducts had halved the incomes of oil palm farmers as demands for the oil palm kernel had sharply dropped.

The price of oil palm kernel fell from Rp 700 to Rp 350 a kilogram after the government raised the export tax from 40 percent to 60 percent in July last year.

He said the high export tax had discouraged CPO producers from exporting, resulting in a flooded local market, especially after the rise in the rupiah's value to between Rp 7,500 and Rp 10,000 to the U.S. dollar in September.

Separately, Rahardi said he had recommended Minister of Finance Bambang Subianto to return the CPO export tax to its original 40 percent.

Rahardi expressed optimism that Bambang would pass his proposal.

"Normally, we would just have to wait for a stamp of approval from the finance minister," he told journalists at an Idul Fitri celebration for staff of his ministry.

Rahardi repeated his proposal when he met Habibie later on Monday.

"This has all been analyzed and we expect this (tax) to be good enough. If this is agreed to by the finance minister, we hope the new tax can come into force on Feb. 8," he told journalists after meeting with Habibie.

Rahardi said earlier the government would also set new basic export prices of CPO and its byproducts on Feb. 8, to determine the amount of tax required of exporters. The current basic export price of CPO is only 84 percent of the international market price.

He said the government would continue to set a basic export price for CPO and its derivatives, because it was another method, besides the export tax, of controlling high outflows of the commodities.

"Our decision on the tax cut and the basic export price is based on domestic demands and on exports of CPO," he said, adding that the government would not limit exports as it did early last year when it imposed quotas to curb exports.

Besides the 60 percent tax on CPO, crude palm olein and oil palm kernel, the government imposes a 55 percent tax on refined bleached deodorized (RBD) olein and RBD palm oil, with 25 percent on crude stearin, and 20 percent on RBD stearin.

It also imposes a 50 percent tax on crude palm kernel oil, 45 percent on RBD palm kernel oil, 20 percent on crude coconut oil and 15 percent on RBD coconut oil. (gis/das)