Emulating Indonesia's Export Tax Regime Not Viable For Malaysia's Palm Oil Industry

By M.Saraswathi NEW DELHI (India), June 20 (Bernama) -- Malaysia is currently mapping out plans to make its palm oil sector more competitive but it would not mirror that of Indonesia's strategies, which in reality, will result in huge losses for producers. In Indonesia, export taxes are collected upfront from producers and Malaysia cannot emulate this pratice as it would distort the market, says Malaysian Palm Oil Council Chief Executive Officer Dr Yusof Basiron. "We cannot copy the Indonesian system of charging upfront duties on Malaysian producers as it is not the right way to do business," he said to a recent suggestion that Malaysia follow Indonesia's tax system and structure. Explaining further, he said the price of fresh fruit bunches (FFB) are calculated less 18 per cent in terms of oil value. "This enables refiners to produce palm oil at 18 per cent cheaper than market rates as it is already discounted at the FFB level. "The mill will then passes the oil to the refineries at another discount of eight per cent," he said. But, some downstream industries only incur minimal export duty, Yusof said, citing bio-diesel which attracted an export duty of only two per cent. And, not all processed palm oil is exported as some are consumed locally in manufactured goods or oleochemicals, said Yusof. "So they have actually collected lots of money at the expense of producers," he said. The Indonesian population consumes significant quantities of palm oil for which duty has been collected, but not paid to the government, as the oil is never exported in the first place. Given the fact that Indonesia's processing industry is flushed with funds collected upfront, this allows them to undercut Malaysian exporters. "Undercutting is bad business," Yusof, said, adding that Malaysia does not have any option but to lower prices, hence the downtrend in prices the past few months. From the business point of view, this is called 'cheap sale', said an industry expert who shared Yusof's views. Malaysia and Indonesia are the only two main suppliers of palm oil and they together dominate 89 per cent of edible oil exported globally. But when one partner offers cheap oil, the other has to reduce prices and suffer a similar reduction in export revenue. "When you offer at a discounted price anybody will take (buy). The price still comes down despite our successful export market," he said, adding that the best solution for Indonesia was to remove export duty on refined products. The aim is to develop their refinery industry, said another expert who declined to be quoted. "If they remove export duties on refined products than those who export crude palm oil like Malaysia will have to clearly indicate their intention in order for the export revenue to be charged back to the producers," he added. The world is in short supply of edible oil, which should result in higher prices, but that is not the case for palm oil now. "So, why undercut in a market of just a few palm oil suppliers when there is a huge demand? People would continue to buy even without a discount or sale, he quipped. -- BERNAMA