Export tax on CPO counter-productive

JAKARTA (JP): Economist Sjahrir yesterday lamented the government's policy of introducing an export tax on crude palm oil (CPO) products, saying that such a measure is counter- productive against efforts to foster non-oil exports.

"Amid the wretched performance of our non-oil exports, what has been introduced by the Ministry of Finance is very, very difficult to understand," Sjahrir said after speaking about thermal power plants.

Based on recommendations from the Ministries of Trade, Industry and Agriculture as well as the government-run semi- buffer stock agency Bulog, the Ministry of Finance last week introduced an export tax on CPO products to protect local producers and stabilize domestic cooking oil prices.

The tax, which took effect on Sept. 1, is imposed only when the price of cooking oil on the local market reaches above Rp 1,250 (57 U.S. cents) per kilogram. The tax rates vary according to the volume of the exports and their FOB (free on board) prices.

Sjahrir argued that if the aims are to protect local producers and to stabilize local prices, introducing the export tax is counter-productive for both the country's exports and the industry's production efficiency.

"If it's only about price control, everybody knows the best way is by liberalizing trade so that there is no significant difference between domestic and overseas prices," Sjahrir said.

He noted that Indonesia should continue to deregulate its export-import policies which hamper fair competition. "Only by fair competition will the efficiency of local industry improve," he said.

The prices of CPO products in Indonesia, the lowest in Asia, have discouraged local producers from selling their products at home. The price of cooking oil in Indonesia, for instance, is US$663 per ton, lower than $680 in Malaysia, the world's biggest producer of palm oil, and $720 in Europe.

The chairman of the association of cooking oil producers said recently that introducing the progressive tax on CPO exports may discourage new investment for CPO production.

The government is currently engaged in an intensive campaign to encourage investors to open new palm oil plantations in a bid to increase annual CPO production to around seven million tons by 2000 from four million tons at present. (rid)