Malaysia Cuts Palm Oil Export Tax

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

15 October 2012

In an effort to allow Malaysia’s industry to compete with other exporting countries, particularly Indonesia, Plantation Industries and Commodities Minister Tan Sri Bernard Dompok has announced a cut in the export duty on crude palm oil (CPO) from January 1, 2013.

While full details are still to be confirmed, it is expected that Malaysia’s export duty on CPO will be allowed to fluctuate monthly dependent on world prices, from 4.5% if the CPO price per tonne is between MYR2,250 (USD736) and MYR2,400, to 8.5% if the price reaches MYR3,400. The current tax rate is 23%.

Dompok, confirming that refined palm oil exports will remain tax-free, pointed out that the government wants to introduce a tax regime for the palm oil industry that will ensure that its producers will not be penalized in comparison with producers in other countries. It has been noted how the monthly sliding scale of CPO duty will be directly comparable to the system that has already been adopted by Indonesia.

Malaysia is, after Indonesia, the second largest world producer of CPO, which is used not only in food but also in soap, detergents and biofuels. World CPO prices have, however, reduced by about one-third this year, as a reaction to falling demand amid global economic uncertainty. Cheaper supplies from Indonesia, following the reduction in its export taxes, have seen Malaysia suffering from a significant reduction in its export shipments.

Malaysia will also cancel its duty-free CPO export quota, which had been set at 5m tonnes but has, this year, been underutilized. With the reduced world demand, the country’s domestic palm oil reserves have already reached a record high.

Dompok added that the introduction of the new tax arrangements is being delayed until the beginning of next year to give the Malaysian palm oil industry the chance to restructure. The government hopes that they will not only provide an opportunity for the sector to compete internationally, but will also strengthen the domestic refining industry.