Poram: Malaysia's refiners will gain from 4.5pc CPO export tax

KUALA LUMPUR: Malaysia's decision to set its crude palm oil (CPO) export tax for March at 4.5 per cent, up from zero per cent in January and February, will give local refiners a reasonably good margin to survive.

Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Mohammad Jaaffar Ahmad said the imposition of the tax will level the playing field with Indonesia as well as increase its utilisation to more than 70 per cent from 60 per cent before.

"We are not against the export of tax-free CPO but first you must ensure there is enough supply for local refiners. This is what we want as the tax will make it more expensive for palm oil producers to sell overseas and it can be used to make palm olein at local refineries," Mohammad Jaaffar told Business Times in a phone interview yesterday.

Mohammad was commenting on the government's circular yesterday which decided to set its crude palm oil export tax for March at 4.5 per cent, from zero per cent in January and February.

Malaysian authorities, especially Poram, have long fought for the introduction of a new export tax schedule because without it local producers such as Felda Global Ventures, Sime Darby Bhd and IOI Corp can export more CPO to their refineries overseas tax free, at the expense of local market.

This will affect local refiners because CPO in Malaysia can sometimes be in short supply, leaving Poram members with limited CPO to process into palm olein or cooking oil.

Indonesia, on the other hand, imposed a nine per cent tax on its CPO exporters, but the republic, as the world's number one CPO producer, has abundant supply of the commodity to be exported as well as for feedstock for its local refiners.

"I think the export tax is good as it will make it more difficult for Malaysia's producers to sell unless there is a huge demand.

It is a good demonstration by the government to level Malaysia's playing field with Indonesia.

The government had last December decided to cut CPO export tax to between 4.5 per cent and 8.5 per cent, suspend the CPO duty-free quota and introduced a new export tax level for CPO exports.

With the new CPO tax levels in place for Malaysia, Indonesian refiners/exporters will have between one and 1.5 per cent tax advantage compared to 5.5 and 9.5 per cent earlier.

Even when the CPO price increases, the net benefit to Indonesian refiners/exporters will still remain bet-ween the range of one per cent and 1.5 per cent only.

With this marginal margin, Malaysian refiners will have a survival chance to compete with the Indonesians.

In the past, the effect of export taxes on pricing of raw material input (CPO) was unaffected because of the presence of CPO export quotas.