Ina new regulation will benefit palm oil industry directly
Published on: Monday, August 03, 2015
Kuala Lumpur: Indonesia – the world's largest palm oil producer has issued a new regulation that will change the way its crude palm oil (CPO) and palm oil products export taxes are calculated.The decision to change the palm oil export levy or tax rate from the percentage of price to absolute US dollar denomination is seen to be more practical and transparent.This is the second change in July by Indonesia's Finance Ministry, after imposing a US$50 per tonne levy on CPO exports that took effect on July 16.
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The levies of US$50 per tonne for CPO and US$20-US$30 per tonne for processed palm oil will benefit the industry directly, says industry players.MIDF Research, in its latest report, is positive on the new changes in Indonesia's palm oil export tax as "it will make the calculation simpler for the industry players there.""With the new system, the all in tax will be the CPO export tax plus the US$50 per tonne levy." Recall that the previous calculation sets the base price on a monthly basis, in which the percentage of tax will be determined.For example, export tax for CPO ranges from 7.5 per cent to 22.5 per cent when CPO price exceeds US$750 per tonne.
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Furthermore, there is no impact to the earnings of plantation companies as "the export tax savings will only come when CPO price exceeds US$750 per tonne." Currently, CPO is trading at US$540-US$560 per tonne level.MIDF calculation also shows that there is indeed some savings in CPO export tax under the new palm oil export tax structure as compared to the previous one.
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"However, the savings will only materialise when CPO price exceeds US$750 per tonne (or RM2,850 per tonne based on the current foreign exchange rate of US$1=RM3.80)."The savings range from US$3.25 to US$31.25 per tonne or 5.8 per cent to 11.1 per cent. However, all these savings will only happen when CPO price exceeds US$750 or RM2,850 per tonne."We do not expect such scenario to happen in the near term as our forecast for average CPO price is at RM2,175 per tonne in 2015 and RM2,100 per tonne in 2016 respectively."Meanwhile, Palm Oil Refiners Associaton of Malaysia (Poram) says that based on its analysis, Malaysia should consider revising its current CPO export tax structure implemented since January 2013 to mimic the new changes in the Indonesian export duty structure.Chief executive officer Mohammad Jaaffar Ahmad said that "I think, our downstream industry is quite competitive when the Indonesian CPO price is above US$750 per tonne, even with the new export duty being revised.""The challenge here is when the price of CPO is trading below the threshold price of RM2,250 per tonne."Currently, at below RM2,250 per tonne, Malaysia did not impose any CPO export tax."At that level, we have noticed that a lot of CPO are being exported from Malaysia," says Jaaffar."If we do not act prudently, Indonesia will continue to have a US$20-US$30 per tonne advantage in terms of refining CPO in their country."We will then return back to the pre-2011 situation whereby Indonesia will be more competitive in marketing their processed palm oil globally."We need to close this gap, especially when the CPO price is lower than US$750 as per the Indonesian export tax structure," explains Jaaffar.Fortunately, Malaysia is now working with all stakeholders and the Government to address "this issue and to find our own triple-wins objective."Jaaffar concurs that the Indonesian palm oil industry is on the right track in managing its palm oil export tax structure.He says the levies of US$50 per tonne for CPO and US$20-US$30 per tonne for processed palm oil will benefit the industry directly as all the levies collected will be invested back in the upstream (replanting and research and development) and the downstream (biodiesel subsidies and market promotion) as stated by the Indonesian government.Stay up-to-date by following Daily Express’s Telegram channel.
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