Conflicting strategies on CPO tax

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)