Indonesia Considering Another Cut In Palm Oil Export Tax

by Mary Swire, Tax-News.com, Hong Kong

14 October 2008

The Indonesian government may be preparing another cut in the export tax on palm oil as world prices for the commodity continue to slump amid a sharp fall in demand.

The price of palm oil has plunged despite stockpiling of the resource because of unwillingness to sell at low enough prices. Palm oil prices are trading at their lowest in more than 22 months and are around 60% below record levels of 4,486 ringgit (USD1,289) per tonne hit in March 2008.

Indonesia and Malaysia currently supply 80% of the worlds’ palm oil which is exported to countries who depend on the raw material, primarily China and India, as it is a major ingredient in the production of both vegetable oil and bio-fuels.

The decrease in export tax is proposed by the government to help shift export stockpiles and increase demand from international buyers.

Despite anticipated growth in the supply of palm oil there are fears that the global banking crisis will lead to suppliers being unable to borrow money to invest in expansion of their crops, leading to a halt in growth.

Indonesia's trade ministry previously cut the export tax from 10% to 7.5% on September 22. The ministry also lowered its base export prices for palm oil to USD736 a tonne for October, from USD902 a tonne a month earlier.

It is thought the government would go ahead with plans to reduce the export tax if the price stays below USD500 a ton.

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