Palm olein duty structure reform

Malaysia is drawing up an action plan, which will likely include reforms in its crude palm oil (CPO) export duty policy and a new fund estimated at over RM1bil, to assist local downstream players badly affected by Indonesia's palm oil export duty structure, sources said.

While the local CPO export duty has remained unchanged at 23% since the 1970s, Indonesia's CPO refined products export duties have been drastically slashed by more than half since October last year, and currently range from 3% to 20% .

Under the new duty structure, Indonesian palm oil refiners are expected to reap 5% to 8% higher profit margins compared with the traditional operating profit margins among Malaysian at 3% to 6%.

“The lower export duty means that the Indonesian refiners are able to offer refined palm products at very competitive prices compared with the local refiners which are getting higher priced CPO feedstock,” said a source close to the industry.

The Government is in the final stage of putting together appropriate measures for a rescue plan to help the RM6bil local palm oil downstream industry.

The Plantation Industries and Commodities Ministry, after meeting with parties concerned, had made two proposals the Industry Adjustment Fund (IAF) estimated at over RM1bil and a Fallback Plan for the oil palm companies, refiners, oleochemicals and biodiesel players.

The source pointed out that IAF, which would be generated from a new cess to be collected from upstream players, however, was met with strong opposition from the Malaysian Palm Oil Association and the Malaysian Estate Owners Association (MEOA).

This is in view of the plantation sector's existing list of taxes, cess, levy and export duty with total tax paid exceeding 46% annually or 20% more than the other sectors in the country.

The Fallback Plan on the other hand is generally supported by the local plantation players.

Among the measures are;

Maintaining the export duty on crude palm oil (CPO) and crude palm kernel oil (CPKO),

Lower duty on semi-finished palm oil products to prevent leakage,

Abolition of duty-free export quota for CPO and CPKO and

Indirect assistance to smallholders to offset any reduction in fresh fruit bunches (FFB) price.

According to an MEOA member, the association had conveyed its disagreement on IAF to the ministry in November last year.

He said that ME0A was generally positive on the Fallback Plan but sought changes to some of the measures proposed by the ministry.

The export duty of local CPO and CPKO must be lower than Indonesia but high enough to give Malaysian oil palm refineries a competitive edge against foreign refiners.

The proposed indirect assistance to smallholders to offset any reduction in FFB price must be given “only when the FFB price falls below RM400 per tonne,” he added.

In addition, the revenue generated from palm oil export and import duties must be utilised for the benefit of the palm oil industry such as funding for cooking oil subsidy with concurrent abolition of the Windfall Profit Levy.

Palm Oil Refiners Association (PORAM) CEO Mohamad Jaaffar Ahmad recently said oil palm refiners were badly hit by Indonesia's new tax structure.

There are 51 oil palm refineries in Malaysia and most of them are members of PORAM. Indonesia has reduced its export duty on RBD palm olein in bulk to 7% from 15% while the export duty on CPO is unchanged at 15%.

Previously, the price of Indonesian RBD palm olein FOB based on the 15% export tax was US$1,159 per tonne compared with US$1,162 per tonne from Malaysia.

However, the reduced tax at 7% would allow Indonesia's RBD palm olein to be sold at US$1,091 per tonne or at least US$71 cheaper than local RBD palm olein, added Jaaffar.

The total cost of processing/refining CPO into RBD palm olein among Indonesian refiners would also be lower by at least US$100 or at an estimated US$988 per tonne compared with local refiners.