Indonesia will increase crude palm oil export tax to 10%

Indonesia's chief economic minister announced on Thursday that it will increase the export levy on crude palm oil (CPO), from 7.5% to 10%, to fund higher biodiesel subsidy.

Airlangga Hartarto stated that the levy would be implemented as soon as the Finance Ministry has issued its relevant regulation.

Indonesia, which is the largest palm oil producer in the world, collects levies for its mandatory biodiesel program, where the bio-content, or B40, will increase to 40% from the current 35% starting January 1.

Subsidies will increase with a higher blend.

BPDPKS (the agency responsible for collecting and managing palm oil funds) estimated in November that increasing biodiesel blends to 40% would result in a 68% increase in subsidy requirements.

Airlangga, when asked about subsidy funding, said: "There will be financing from BPDPKS... first, we will raise the levy up to 10%."

Palm oil costs approximately $400 more per metric ton than crude oil.

Indonesia imposes an export tax of 7.5% on CPO, while a levy between 3% to 6% is applied for refined palm oil.

Airlangga didn't elaborate on the new levies for refined palm oils.

Eddy Martono, the chairman of GAPKI, is worried that a higher tax will lower the competitiveness for Indonesian exports.

"Our palm oil is more expensive than Malaysian palm because of the levy, export taxes and domestic obligations." "These are all burdensome", he said.

Airlangga’s comments led to a significant reduction in the price of the benchmark palm oil contract, which had fallen as much as 3.58 % earlier on Thursday. At 0937 GMT, it was trading 0.33% down.

According to a senior official in the Energy Ministry, the government plans to allocate 15,62 million kilolitres (up from 13,4 million) of B35 unblended to fuel retailers. Reporting by Bernadette Munthe. Writing by Fransiska Nangoy. Martin Petty, Mark Potter and Mark Potter (Editing)

(source: Reuters)