High export tax on CPO encourages smuggling: Experts

High export tax on CPO encourages smuggling: Experts

JAKARTA (JP): The government must ease the restrictions on
exports of crude palm oil (CPO) products to prevent the country's
oil palm plantation companies from collapsing and to help
stabilize the country's deteriorating macroeconomic condition, an
economist has said.

Head of the Center for Social and Economic Studies Mangara
Tambunan also said yesterday that the recent rise in export taxes
levied on CPO products would only encourage smuggling. CPO export
taxes were recently increased to as high as 60 percent.

He said that the high export taxes would force many oil palm
plantation companies out of business because they had come at a
time when fertilizer prices were also cripplingly high.

"How can plantation companies offset the soaring cost of
fertilizer if they are forced to sell only on the domestic market
and are prohibited from benefiting from higher export prices," he
told reporters at the presentation of a study on the impact of
proposed economic reforms on small and medium-sized enterprises.

The government has abolished subsidies on fertilizers except
those used for food crops grown by smallholder farmers.

The government raised taxes levied on the export of CPO, which
is used to produce cooking oil, in an attempt to force producers
to sell on the local market and push down domestic prices.

The export tax was increased to 60 percent after a 40 percent
tax imposed in April failed to curb CPO exports. Exporting has
become a very attractive option for producers since the rupiah
dropped sharply in value against the U.S. dollar.

The international price of CPO is currently hovering at
US$0.70 per kilogram compared to the domestic price of Rp 6,000
($0.40) per kilogram.

Mangara also said that CPO policy should be refocused toward
obtaining foreign exchange because that would help to revitalize
the rupiah and stabilize the country's economic situation.

"We really need foreign exchange to stabilize our economy," he
said.

The rupiah was trading at around Rp 15,000 to the U.S. dollar
yesterday, compared to its pre-crisis level of Rp 2,450 in July.

Other commentators at the discussion said the anti-export
policy would only encourage rampant smuggling of CPO products.

They pointed out that to circumvent the tax, producers had
started to export palm kernel to Malaysia where it was then being
refined into CPO and its derivatives.

"Traders will always find loopholes," one commentator said.

Mangara also said that by increasing the export tax to 60
percent the government might raise questions among the
international community about its commitment to implementing the
package of reforms which it has agreed with the IMF in exchange
for massive emergency loans.

He pointed out that Indonesia had agreed with the IMF to limit
the export tax on CPO to 40 percent.

"The government must rethink the policy," he said, adding that
maintaining a low cooking oil price should not be a top
government priority in tackling the year-long economic crisis.

"CPO is not an essential commodity. We're not going to starve
if we don't consume fried food," he said.

Mangara, Thee Kian Wie of the National Institute of Sciences
(LIPI), and Tulus Tambunan of the Indonesian Chamber of Commerce
and Industry (Kadin) yesterday presented a joint study funded by
the Asia Foundation on the impact of the package of reforms
agreed with the IMF on small and medium-sized enterprises.

The study concluded that the package would have a positive
effect on small and medium-sized enterprises in the long-run, but
a devastating short-term impact.

The study pointed out that plans to abolish subsidies on fuel
and other essential items would crush many companies which were
already experiencing plunging demand and having difficulty paying
for raw materials.

The manufacturing sector would be the worst affected by the
removal of subsidies on fuel and electricity, but the
agricultural sector would not be so badly hit, it said.

"Many small textile, garment and shoe manufacturers will be
forced out of business unless the government provides them with
temporary assistance," Tulus said.

He urged the government to include salvageable small and
medium-sized ventures in its social safety net program.

Small and medium-scale businesses have the potential to
provide workers laid-off from large companies with alternative
employment, he said.

Mangara, however, stressed that it was important for the
government to commit itself to the package of reforms because
without macroeconomic stability, any special assistance directed
toward the nations entrepreneurs would be useless.

He pointed out that there were over 34 million small or
medium-sized enterprises in the country which contributed 39
percent of gross domestic product in 1994. (rei)