Indonesia looks at changing palm oil export tax structure

JAKARTA: Indonesia's industry ministry is considering changes to the country's palm oil export tax system, a government official said on Wednesday, as the top producer and exporter of the edible oil looks to further promote downstream industries.

Southeast Asia's biggest economy - forecast to produce between 28 million and 30 million tonnes of crude palm oil and export around 21 million tonnes this year - introduced a monthly export tax in 1998 on palm oil and its products to guarantee domestic supplies and develop local processing industries.

But with palm refining capacity set to jump almost 50 percent to 45 million tonnes in 2014, the industry ministry is looking at offering tax breaks to higher value-added palm products, Panggah Susanto, director general of agricultural industries told reporters.

"The government is assessing and evaluating the existing palm oil export tax structure," Susanto said. "If the assessment is finished in May, the next step is to discuss it with other ministries, like the trade and finance ministries.

"We expect the new export tax structure of palm oil and palm oil base products can be imposed by next year at the latest."

Palm oil is used mainly as an ingredient in food such as biscuits and ice cream, or for biofuel. Removing the export tax on biodiesel, hydrogenated palm oil products and palm meal was one option under consideration, Susanto said.

"Biodiesel is an end-product, so it does not need to be subjected to an export tax," he said. "In principle, the export tax is not an instrument aimed at fostering state revenue, but at driving higher added value."

There are doubts that Susanto's plan will go ahead, however, as Indonesian President Susilo Bambang Yudhoyono is nearing the end of his two-term limit and his party is unlikely to play a major role in a newly formed government after July's election.

Indonesia's government now sets its monthly crude palm oil (CPO) and palm oil products (olein) export taxes based on the performance of global pricing benchmarks for the previous month.

In late 2011, Indonesia angered the world's no.2 producer Malaysia and top buyer India by cutting the export tax cap on olein more than on CPO in order to promote domestic downstream and value-added industries like refineries.

Firms that have invested in Indonesian palm refineries include Singapore's Wilmar International, Indonesia's largest-listed palm firm PT Sinar Mas Agro Resources & Technology and unlisted Musim Mas. - Reuters