06/10/2012 (Jakarta Post) - Indonesia, the world’s largest palm oil producer, will still maintain its current palm oil export tax in spite of a potential export tax cut by its top competitor Malaysia, to further boost the development of the local downstream industry, Deputy Trade Minister Bayu Krisnamurthi says.

“Business players expect a consistent [government’s] policy. We must anticipate the market, but at the same time, must remain consistent,” Bayu said on Thursday in Jakarta.

The government would need to monitor three-year average prices before changing its export tax policy, instead of reacting to a single price drop, he added.

Malaysia’s Plantations Industries and Commodities Ministry has recently proposed to its Cabinet a plan to slash its palm oil export tax to between 8 percent and 10 percent from 23 percent at present,to push up its exports.

This measure is a response to counter Indonesia’s tax regime that was adjusted late last year, which lowered its export tax on refined palm oil products from 25 percent to 10 percent.

This new tax structure complements a progressive tax on the export of crude palm oil (CPO), which starts at 22.5 percent whenever the price of the commodity goes beyond US$750 per ton. Exporters are required to pay an export tax of 1.5 percent for every $50 increase in the price from the threshold.

The government said that this structure had created incentives for players in the palm oil refinery industry, thus boosting Indonesia’s competitiveness against rival Malaysia.

Bayu said that this boost was proven in the data of monthly exports, according to Bayu. “There has been a trend that downstream palm oil products will continue to rise higher than the crude oil,” he said.

Trade statistics shows that from January to July this year, exports of CPO dropped by 16.93 percent to 3.67 million tons by volume from a year earlier, while exports of refined palm oil rose by 72.14 percent to 7.62 million tons.

In line with this, value of CPO exports also shrank by 25 percent to $3.63 billion during the designated period, compared to refined palm oil exports that climbed by 53.20 percent to $7.81 billion.

Indonesian Palm Oil Producers Association (Gapki) executive director Fadhil Hasan said that the government should soon assess the impact of the Malaysia’s export cut after it was issued.

“Whenever necessary, the government should review the tax policy to side with local producers,” he told The Jakarta Post.

The market has responded to Malaysia’s plan, palm oil prices climbed for the second day on Thursday, Bloomberg reported.

The December delivery contract rose as much as 2.3 percent to 2,404 ringgit ($786) per ton on the Malaysia Derivatives Exchange, and was at 2,390 ringgit at 4:14 p.m. Futures reversed an earlier 1.3 percent decline and are set for a 6.1 percent drop this week.

Earlier, due to rising stockpiles, palm oil futures have lost more than a quarter since the beginning of this year, and this condition is worsened by the euro debt crisis that pushed down demand.