07/09/2011 (Bloomberg) - The Indonesia Palm Oil Association urged the government not to impose higher export taxes on crude than its refined products as it could encourage smuggling and harm the processing industry.

“The significant difference between tariffs for crude palm oil and its products will only boost smuggling,” Fadhil Hasan, executive director at the association said in a press conference in Jakarta today.

Indonesia, the largest palm oil grower, introduced a maximum tax of 10 percent on refined, bleached and deodorized palm oil, according to a Finance Ministry Decree signed Aug. 15. The tax rate for RBD palm olein will be 13 percent. Crude palm oil will be taxed at maximum of 22.5 percent. The new tax will take effect Oct. 1.

A flat tariff of around 3 percent to 5 percent on crude oil would be more beneficial for both growers and refiners, Hasan said.

The new tax would have a negative impact on Indonesian upstream planters in 2012 and 2013 as it would still take them time to decide and build refining capacity, HwangDBS Vickers Research Sdn. wrote in a report today.

“The decision is final,” Deddy Saleh, director general of foreign trade at the Trade Ministry, said separately in Jakarta. “What’s more important now is no longer opposing the new policy but how to formulate a system that the tax revenue could be used to improve welfare of oil palm farmers.”

Still, there is unlikely to be any impact on global crude palm oil supply as a result of the new tax structure, as upstream planters will have to accept lower prices until any additional refining capacity comes on stream, HwangDBS said in the report.