Indonesia cuts export taxes on CPO and products

JAKARTA (JP): Minister of Trade and Industry Luhut Pandjaitan said on Monday that the government had agreed to cut down export taxes on crude palm oil (CPO) to five percent and on its products to two percent.

Luhut said that the new tax policy would be effective starting on Tuesday (today).

"The export tax on CPO will be reduced to five percent, while the tax on its derivatives including olein will be lowered to two percent," he told reporters before attending a meeting with other economic ministers.

Luhut said that the decision was made during an earlier meeting he had with Finance Minister Prijadi Praptosuhardjo.

The government has been under pressure from local CPO companies to cut down the export taxes on CPO and its products to reduce a glut in domestic supply and to make local CPO products more competitive against products from Malaysia, the world's largest CPO producer.

Indonesia, the second largest CPO producer, earlier imposed a 10 percent export tax on CPO, eight percent export tax on crude palm olein, six percent on refined bleached deodorized (RBD) palm oil and six percent on RBD palm olein.

The government banned exports of CPO in 1998 during the heightened political and economic crisis in a bid to ensure an adequate domestic supply of CPO, a raw material for cooking oil, which is a basic necessity in a country of some 200 million who love fried foods.

A boom in CPO exports in 1998, before the trade ban was introduced, had caused a scarcity of cooking oil in the domestic market which helped trigger social unrest in several parts of the country.

The government then replaced the export ban with taxes. Under an agreement with the International Monetary Fund, the export taxes were gradually cut down from 60 percent in 1998 to 10 percent by the end of last year.

The IMF is providing a multibillion dollar bailout loan to help finance the three-year economic program of the current administration.

Meanwhile, a source at the finance ministry said that the government was actually reluctant to lower the export taxes on CPO and its derivatives because the domestic cooking oil demand would soar in December amid year-end festivities.

The source said that the government feared cooking oil could become scarce if the export taxes were lowered.

The source added that the cut in the export taxes would lower the government's revenue.

The announcement of the reduction in the export taxes of CPO and its products was made amid plans by Malaysia to increase palm oil exports by around one million tons over the next six months in order to cut its stock pile and boost prices which were now at a 13-year low.

Primary industries minister Lim Ken Yaik said on Sunday that Malaysian CPO would be exported to India and Europe and credits worth US$135 million would be provided to buyers and counter- trade arrangements would be established with China.

"The finance minister has agreed to an initial export of 500,000 tons of crude palm oil to India and Europe in six months' time," he was quoted as saying by Bernama news agency.

The federal government agency Felda and six companies had been authorized to export the crude free of the normal tax.

Credit worth US$50 million would be given to Russia, $30 million to Egypt, $25 million to Bangladesh, $20 million to Myanmar and $10 million to North Korea.

The total credit of $135 million would pay for about 350,000 tons of palm oil.

Some 200,000 tons of palm oil would be exported to China in exchange for 33 diesel locomotives.(rei)