Options against palm oil incentives

LMC chairman spells out moves to counter Indonesia’s lower export tax structure

BANGI: Malaysia has three main policy options to counter the lower Indonesian palm oil export tax structure introduced in September last year, according to Uk-based LMC International Ltd chairman Dr James Fry.

He said the first option would be for Malaysia to continue maintaining its current policy while increasing its crude palm oil (CPO) export quotas slowly. However, it was too late for diplomatic pressure to persuade the Indonesian government to dismantle its array of export incentives for the downstream industry.

“So Malaysia must wait steadily for the growing competition from Indonesian palm oil processing industry in the export arena,” Fry said at the Malaysian Palm Oil Board (MPOB) Programme Advisory Committee (PAC) Seminar yesterday.

He said this would lead to substantial overcapacity in the downstream sector in South-east Asia.

“With all this over-capacity, the side with the export tax advantages will then put pressure on the one without them,” he said.

Another option is to match in full the incentives provided by the Indonesian export tax system by adapting Malaysia current cpo export tax rules to offset the advantages enjoyed by Indonesia exporters via its export tax system.

This will include dismantling some taxes in the industry, such as the

While the graduated tax need not go this high, I think a peak export tax of 4% to 5% will be enough to support the margins of local refiners. — JAMES FRY

windfall profit levy andd the Cooking Oil Subsidy Scheme (COSS) cess in the local industry.

“This reform, however, will not be politically popular since among its implication would be an extra tax of up to 20% on smallholders revenue in relation to their current selling prices,” Fry said.

The final option would be to focus on the biggest loser both in tonnage and volume – the local palm oil refiners – from the new Indonesian export tax.

“The Government can focus on the policy that will support the margins of local refineries whereby it could apply a graduated export tax on CPO, increasing it to 9% to match indonesia’s gap.

“While the graduated tax need not ggo this high, I think a peak export tax of 4% to 5% will be enough to support the margins of local refiners,” Fry aadded.

To a question on why the Government could not levy higher CPO export taxes now and introduced a refined oil export tax to generate money to subsidise the lossmaking processors, he said: “This simply will mean Malaysia stands to breach the rules of the World Trade Organisation.”

Meanwhile, Felda Global Ventures Holdings Bhd (FGVH) group president and CEO Datuk Sabri Ahmad said the Indonesian new palm oil export duty taxes posed a big challenge to refinery operators in Malaysia.

“The refineries belonging to Felda are also affected by this latest development,” he said.

It is estimated that about 170,000 tonnes of CPO have to be imported annually from Indonesia to support the local refinery business.

Sabri earlier made a presentation on the fgvh listing on Bursa Malaysia –A Strategic Way Forward to Champion the Oils and Fats Market.

He pointed out, among others, that the listing would position the group to be a leading global agri-business company in the next 50 years, enabling it to have a strong competitive and sustainable business model.

It would also allow Felda group settlers, employees and the general public to become shareholders of FGVH.