Cut on CPO export tax will boost exports: Federation

Cut on CPO export tax will boost exports: Federation

JAKARTA (JP): The recent cut in export taxes on crude palm oil
(CPO) and its byproducts is expected to boost exports, although
the industry considers the new tax level of 30 percent to be
still too high.

The chairman of the Federation of Indonesian Palm Oil
Producers, Derom Bangun, said the export tax reduction would make
Indonesian CPO-based products more competitive in international
markets.

However, he urged the government to lower the export tax
further to 20 percent, which he said was a more suitable level to
encourage farmers to plant oil palms and boost exports.

"Although the 30 percent export tax is still too high, I am
confident it will boost the competitiveness of Indonesian CPO
products in international markets.

Derom said the cut would provide some relief to the industry.
Nevertheless, producers have continued to prefer to export olein
to CPO due to higher prices and a lower export tax.

The government slashed the export tax on crude palm oil (CPO)
from 40 percent to 30 percent in a bid to boost exports and
farmers' incomes. It also lowered the export taxes on CPO
byproducts to as low as zero to 26 percent.

The new taxes will be effective from June 3 to July 5.

The government said the decision was taken after seeing the
continued decline in CPO prices and that of its byproducts on the
international market.

Indonesia, the world's second-biggest producer of CPO after
Malaysia, has tried several approaches to limit exports of CPO,
from which cooking oil, or olein, is processed.

At the beginning of last year, the government banned the
export of CPO in order to help meet the shortfall on the domestic
cooking oil market.

Under pressure from the International Monetary Fund (IMF),
which is leading a bailout program for Indonesia, the government
then agreed to lift the ban and replace it with a 40 percent
export tariff.

When that failed to limit exports, the government raised the
tax to 60 percent last July. It was lowered again to 40 percent
in February.

Derom said the lower export taxes should not result in a steep
increase in cooking oil prices on the domestic market because
prices had been relatively stable in the past several months.

"Most domestic cooking oil processors currently have enough
stock to supply the domestic market for the coming several
months," he said.

Derom also said the lower export taxes would raise the prices
of oil palm fresh fruit bunches and oil palm kernel produced by
farmers who have been under great pressure over the past several
months.

The prices of fresh fruit bunches and oil palm kernel in
Medan, the country's main producing area of oil palm, currently
stand at Rp 320 (4 U.S. cents) per kilogram, compared to Rp 400
per kilogram in April.

Fresh fruit bunches were traded at around Rp 580 per kilogram
before the export ban was slapped on them.

Depressed prices of fresh fruit bunches have discouraged
farmers and plantation firms from expanding their plantation
areas and enhancing the management of their plantations, because
revenue from selling fresh fruit bunches could not meet the
soaring prices of farming materials.

According to the Indonesian Farmers Union, farmers suffered a
loss of about Rp 150 per kilogram of fresh fruit bunches sold at
current prices.

The union said that the export tax on CPO and its derivatives
should be set at a maximum of 10 percent.

Derom said he was optimistic that the lower export tax would
boost the country's CPO production to six million tons this year,
from 5.4 million tons produced last year.

The government has said that it will slash export taxes on CPO
and its derivatives to as low as 10 percent by the end of this
year to comply with its agreement with the IMF. (gis)