Group urges govt to adjust CPO exports to forex

Group urges govt to adjust CPO exports to forex

JAKARTA (JP): The government should replace the 40 percent tax
on crude palm oil (CPO) exports with a foreign exchange ruling to
encourage exporters to sell the commodity on the domestic market,
the Federation of Indonesian Vegetable Oils and Fats Association
has said.

The federation's vice chairman, Tarmidzi Rangkuti, said
yesterday that the export tax on CPO was not an effective way of
discouraging producers from exporting their produce.

"Even with a 40 percent tax, selling CPO on the international
market is still much more profitable than selling it on the
domestic market," Rangkuti told The Jakarta Post.

At the current CPO international price of US$700 per ton or 70
U.S. cents per kilogram, exporters still make a 42 cents profit
on every kilogram after the 40 percent tax has been accounted
for, Rangkuti said.

With the rupiah trading at Rp 15,000 to U.S. dollar, CPO
exporters can earn Rp 5,888 per kg after tax -- a figure much
higher than the domestic market price of Rp 3,500 per kg.

He said CPO producers could not be blamed for exporting their
products because the huge price differential between the domestic
and international market made exporting a very attractive option.

An official from the Joint Marketing Office (KPB), which
handles the marketing of state-owned plantation companies'
products, said last week that by continuing to focus heavily on
the export market, CPO producers were undermining the government
program to stabilize cooking oil prices on the domestic market.

The official, who requested anonymity, confirmed that many CPO
producers still preferred to export their produce, despite the
high tax.

CPO is the main raw material for cooking oil production.

Rangkuti said the 40 percent export tax was not particularly
effective in curtailing exports because CPO producers could still
"play hide and seek" with customs officials.

"It is possible that CPO producers will attempt to avoid
paying the 40 percent tax on all their exports. You know, 40
percent on sales is a lot of money," Rangkuti said.

He suggested that the government abolish the tax and instead
oblige all CPO exporters to sell their export revenues to Bank
Indonesia (BI), the central bank, at a fixed rate of around Rp
6,000 per U.S. dollar.

"This way, BI would get more dollars to defend the rupiah, and
CPO prices on the domestic market would be more stable because
the dollar-rupiah exchange rate would no longer fluctuate as
sharply as it currently does," he said.

The proposed arrangement, Rangkuti said, would remove the
incentive for CPO exporters to export all of their produce
because the revenues which they made on the domestic market would
then be similar to revenues earned from exports.

If BI fixed the rupiah exchange rate at 6,000 to the dollar,
CPO producers would still get Rp 4,200 per kilogram for exported
CPO -- about the same as CPO prices on the domestic market -- if
the international CPO price stayed at 70 U.S. cents per kg.

"With Rp 4,200 per kilogram, CPO producers would still enjoy a
huge profit because the production cost per kilogram of CPO is
currently Rp 2,500 at the maximum," Rangkuti said.

Before the crisis hit the country, the production cost for one
kilogram of CPO was only Rp 1,500.

Rangkuti, a former BI official, said the requirement to sell
export revenues to the central bank was feasible within existing
laws.

He argued that based on Law No. 32/1964, all export revenues
must be sold to the government through the central bank.

The law, however, was annulled by Government Regulation No.
1/1982 which said that export revenues could be used by exporters
according to their own needs.

"How can a law be annulled by a government regulation. I think
the government should abolish the regulation and require all
exporters to sell their foreign exchange to the government
through BI," Rangkuti said.

"I think it is fair to require exporters to sell their dollars
to the government because they export Indonesian products, the
products of the Indonesian people and soil. The benefits must
therefore also be for the people, not for the exporters alone."
(rid)