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)