A lawmaker and an industry analyst have called on the government to scrap its export tax on crude palm oil to help improve the competitiveness of the sector and boost exports, amid a weakening rupiah.
Since 2015, the Indonesian Oil Palm Estate Fund (BPDPKS), which is tasked with strengthening and promoting sustainable practices in the industry, has been imposing a $50 per ton export levy on crude palm oil and $30 per ton levy on crude palm oil derivative products when prices drop below $750.
The levies were imposed to encourage local producers to sell more of their products at home and to incentivize local biodiesel producers. However, palm oil producers have complained about this policy since the start, as it burdens those seeking to export their products, which is more beneficial during a stronger dollar.
“Under this condition, the government needs to be flexible in imposing some policies. It should consider scrapping the export tax … to help us to achieve a trade surplus,” said Eriko Sotarduga, a member of House of Representatives Commission VI, which oversees trade, industry and business competition.
The rupiah strengthened to 14,825 to the dollar on Friday from 14,840 previously, according to data. It has fallen by 8.5 percent so far this year. Indonesia’s trade balance returned to a $1.72 billion surplus in August after recording its first deficit in 19 months in July.
Eriko said amid the current low price of crude palm oil, scrapping export levies could help producers to expand the market, because they have been struggling to compete with other vegetable oils.
Meanwhile, Bungaran Saragih, an advisor at the Palm Oil Agribusiness Strategic Policy Institute, said the government must provide the industry with its full support, given the fact that the industry sustains millions of people, with about 40 percent of the country’s production coming from smallholders.
“Nowadays, palm oil is the best commodity” to support the nation’s economy and currency. Therefore, it deserves some incentives, he said.
The government has been very careful in dealing with the sector as the commodity is the biggest foreign-exchange contributor.
Palm oil exports reached their highest value ever last year at $23 billion, which was a 26 percent increase from 2016.
However, the current administration is also cautious about issuing new permits to producers. President Joko “Jokowi” Widodo ordered a review of existing permits on Wednesday, amid growing concern over deforestation in the country.
As reported earlier this week, environmental activist group Greenpeace International accused 25 palm oil producers, supplying some of the world’s most renowned brands, of contributing to massive forest destruction.
