Govt imposes new 40% tax on CPO exports

JAKARTA (JP): The government imposed yesterday export taxes of up to 40 percent for crude palm oil (CPO) and its by-products following the lifting of the export ban on the commodities.

It also imposed new export taxes on coconut oil products.

The new decree is in compliance with the terms agreed upon with the International Monetary Fund (IMF) on April 8 in exchange for a US$43 billion bailout.

"This is what has been agreed on with the IMF," Minister of Trade and Industry Mohamad "Bob" Hasan said after a meeting of the Council for Economic and Monetary Resilience yesterday.

"When the domestic market of the commodities strengthens, we will adjust the tax again, so that the prices of cooking oil will be stable and the domestic supply will be enough."

The tax decree, issued by Minister of Finance Fuad Bawazier, states that a 40 percent tax will be imposed on the exports of CPO and crude olein.

Exports of refined bleached deodorized (RBD) palm oil, RBD olein, crude stearin and crude palm kernel oil will be charged a 35 percent tax.

The government has also imposed a 30 percent export tax on RBD stearin and RBD palm kernel oil.

The decree also puts a 20 percent export tax on crude coconut oil, and a 15 percent tax on RBD coconut oil.

Hasan said he was optimistic that prices of CPO in the international market would drop, thus stabilizing the local supply of the cooking oil.

Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita said lower international prices would affect domestic prices.

"It is impossible that the international price would continue to be high when the supplies have increased."

In January, Hasan's predecessor Tunky Ariwibowo banned exports of CPO and its derivatives to stabilize the prices of the cooking oil, which had increased sharply due to the drastic fall of the rupiah against the U.S. dollar.

But the move failed to stabilize the prices, while the rupiah continued to sink.

When the government signed its second economic reform agreement with the IMF on Jan. 15, it agreed to abolish the ban by April, but later backtracked on the pledge.

In the deal made with the IMF on April 8, the government agreed to remove the ban by April 22 and replace it with the export tax.

Export taxes will be evaluated continually, and the government has said they will be reduced when local market prices stabilize and the rupiah's value strengthens.

The taxes are scheduled to be lowered to 10 percent before the end of December 1999.

The lifting of the country's ban on crude palm oil exports will help ease a supply shortage in the world market and lower prices, analysts and trade sources in Malaysia said yesterday.

"We would expect the sudden reintroduction of Indonesian exports will relieve some of the pressure in the global market for palm oil -- even here in Malaysia, where refiners need more crude palm oil to keep their factories going," said Greg Feldberg, a plantation analyst at ABN-AMRO Asia.

"We would also expect some short-term downward pressure on the price as the market receives a new source of supply," he was quoted as saying by Reuters.

Trade sources in Indonesia claimed that at least 100,000 tons of CPO was ready for loading on waiting vessels in an Indonesian port as soon as the government lifts the export ban.

Feldberg said the lifting of the export ban had been expected for a long time and some buyers had been waiting to buy in anticipation of lower prices.

Meanwhile in London, palm and coconut oil prices opened firm in Europe yesterday as Indonesia lifted its ban on palm oil exports.

Crude palm oil opened in Europe $10 to $15 a ton, but traders said buys were around $12.50 below the asking prices.

"These are very early prices, the market is firm, but we expected prices to settle down later in the day," said one. (das/prb)

Table: New export taxes on palm oil and coconut oil products

(Commodities, Export Tax): Crude palm oil (CPO), 40 percent; RBD palm oil, 35 percent; Crude olein, 40 percent; RBD olein, 35 percent; Crude stearin, 35 percent; RBD stearin, 30 percent; Crude palm kernel oil, 30 percent; RBD palm kernel oil, 30 percent; Crude coconut oil, 20 percent; RBD coconut oil, 15 percent.