Kadin suggests 10% export tax on CPO

JAKARTA (JP): A planned cut of the export tax imposed on crude palm oil (CPO) and its by-products would not be enough to help farmers and plantation companies cope with the current economic crisis, the Indonesian Chamber of Commerce and Industry (Kadin) said on Tuesday.

The head of the plantation department at Kadin, Sjakdim Darminto, said that export taxes on CPO should be set between 5 percent and 10 percent to support farmers cultivating oil palm plantations.

The government, however, plans to cut the current 60 percent CPO export tax to no lower than 40 percent.

Sjakdim said the 40 percent export tax would force many oil palm farmers and plantation companies out of business because of depressed prices of oil palm kernel combined with rising fertilizer prices.

"The high export tax has adversely affected the welfare of oil palm farmers because it has caused the price of oil palm kernels to sink."

"How can farmers and 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 said.

Sjakdim said many plantation farmers in North Sumatra, the country's main CPO producing area, were considering leaving the business because their incomes were currently not enough to cover the costs of fertilizers, farming materials and the farmer's basic needs.

"If this occurs, it will result in a drastic drop in Indonesia's CPO output. That would be a pity because we all know that CPO has the potential to be a foreign exchange earner for the country," he said.

Sjakdim also said that the high export taxes levied on CPO products would only encourage rampant smuggling.

He said he had received reports that to circumvent the export tax, some producers exported the palm kernels to Malaysia where it was then refined into CPO and its by-products.

"The government must rethink its policy. The policy should not cause farmers great suffering while benefiting smugglers," he said.

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

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

The rupiah is now traded at between Rp 8,000 and Rp 9,000 per U.S dollar, compared to its precrisis level of Rp 2,450 in July.

Sjakdim also said that the CPO policy should be refocused toward obtaining foreign exchange because that would help revitalize the rupiah and stabilize the country's economy. (gis)