Government may reduce CPO export tax between 2 and 3%

JAKARTA (JP): Minister of Trade and Industry Luhut Pandjaitan said on Wednesday that the government would not eliminate the export tax on crude palm oil (CPO) but may reduce it to between 2 percent and 3 percent from the current 5 percent.

"We're trying to find a middle ground. There are two opposing parties here," he told reporters following a meeting with Coordinating Minister for the Economy Rizal Ramli.

"We'll try to accommodate the wishes of both sides. Maybe it (export tax) will be reduced to between 2 percent and 3 percent," he added.

He said an agreement was expected to be reached with the finance ministry within the next two days.

CPO producers, who are mostly based in the island of Sumatra, have called on the government, since the middle of last year, to abolish the export tax to help them compete with Malaysian CPO producers. Malaysia has eliminated its CPO export tax.

Indonesia is the world's second largest CPO producer after Malaysia with its total production projected to reach 7.3 million metric tons this year, up from an estimated 6.5 million tons last year.

But local CPO buyers including cooking oil companies, which are mostly located in the island of Java, have demanded the government maintain the 5 percent export tax to avoid a shortage of CPO in the domestic market.

The government put off taking a decision on the CPO export tax last year to avoid a possible shortage of cooking oil during the year-end festivities.

Cooking oil is a basic commodity. A shortage of cooking oil or a hike in its price could trigger social unrest.

Separately, director general of financial institutions Darmin Nasution, who is in charge of the CPO export tax at the finance ministry, said on Wednesday that he had not received a formal proposal from the Ministry of Trade and Industry.

Darmin, however, agreed that lowering the CPO export tax to about 2 percent would help avoid a severe shortage of CPO in the domestic market.

"The impact of a 2 percent export tax is inconsequential as its not a big incentive to export the commodity," Darmin said.

He said if the CPO export tax was eliminated, producers would prefer to export the commodity.

Finance minister Prijadi Praptosuhardjo said lowering the CPO export tax would not threaten the 2001 state budget because the reduction was insignificant.

"The reduction of the CPO export tax from the current 5 percent to between 2 percent and 3 percent will not adversely affect the state budget because the decrease is small and insignificant," Prijadi said.

"We're waiting for a formal proposal from the Ministry of Trade and Industry. The finance ministry will comply with it," he added.

The tax office has been under pressure to collect sufficient tax this year to help finance the state budget. The office recently issued various rulings to meet the tax revenue target, but they received strong opposition from various parties.

The ruling which raised income tax on bank time deposits and savings to 20 percent from the current 15 percent, for example, has become a public debate.

The ruling to impose a 10 percent value added tax on agricultural products even received strong opposition from ministers and the President. (rei)