Move to revise crude palm oil tax

Industry players expect changes by early next year

KUALA LUMPUR: The long overdue revision of Malaysia's crude palm oil (CPO) export tax policy which has been unchanged since the 1960s will likely take place by year-end or early next year, according to sources close to the industry.

Sources said the Plantation Industries and Commodities Ministry had last month submitted to the Cabinet several proposals including a fall-back plan to abolish the duty-free CPO export quota while seeking lower CPO export duty.

Later this month, the ministry and the Malaysian Palm Oil Board (MPOB) will hold consultation sessions with industry players, particularly local independent palm oil refiners affected by Indonesia's new palm oil export tax structure.

“Many industry players are looking forward to the sessions with the ministry and the Palm Oil Lab on Indonesia's export duty structure this month,” sources added.

In September last year, Indonesia reduced its export duty on refined bleached and deodorised (RBD) palm olein in bulk to 7% from 15%, while the export duty on CPO is unchanged at 15% to boost export of its processed oils.

Palm Oil Refiners Association (Poram) chief executive officer Mohammad Jaaffar Ahmad said all CPO exports in Indonesia had to be taxed and there was no export duty exemption given such as the duty-free CPO export quota in Malaysia.

For Indonesian CPO producers, either they export their CPO and pay the export duty or they have to sell their CPO locally at CPO export duty countback price basis, he explained.

For example, given changes in the tax structure, as at April 2, Indonesia's CPO available to its refiners is priced at about RM2,923 per tonne while Malaysian CPO to its refiners is about RM3,510 per tonne.

Therefore, Malaysian CPO available to refiners is more expensive by about RM587 or US$192 per tonne.

Even with the export duty payable by Indonesian refiners, on FOB (free on board) basis, Indonesian RBD palm olein is still cheaper than Malaysia's by US$88 per tonne.

For packed products, Jaaffar pointed out that the export duty was only 2% in Indonesia. “With cheap CPO and with low duty export for packed products, Indonesian packers can sell their products at much lower price than Malaysian packers at destinations,” he said.

On the possibility of the fall-back plan being passed by the Government, Jaaffar said: “These are the easiest proposals to be implemented and should have been done as soon as possible.”

He said it would give confidence back to independent palm oil refiners that the Government was serious to support foreign and local investments in Malaysia.

Secondly, it will also help improve the overall refining operational capacity, assuming that there will be less CPO being exported now because of the duty involved.

“I believe what is missing from the Cabinet's consideration is Poram's proposal that plantation (upstream) players consider providing CPO users the present price of CPO less a minimum 30% of gazetted CPO duty,” Jaaffar said.

This can also be in the form of Industrial Adjustment Grant (IAG) for two years.

“Refiners need this window of time because Indonesia will experience an excess refining capacity within two years once all the refineries being build now start operating.

By that time, all the advantages will be passed on to the upstream industry in the form of higher domestic CPO in Indonesia similar to Malaysia.

Jaaffar pointed out that the IAG ideally could be funded from the collection of the proposed CPO duty of 8% and supported from cess collection from the upstream sector.

“The Government must look at how the refiners could get a comparative CPO and crude palm kernel oil (CPKO) feedstocks prices on par with Indonesia for the local market,” he added.

Jaaffar said the industry had been patiently waiting for the government decision for almost eight months now and “finally we are seeing light at the end of the tunnel but will still not be able to get out of the tunnel unless the Government seriously look at the competitive price of domestic CPO and CPKO.”

There are 51 palm oil refineries in Malaysia and most of them are Poram members.