08/05/2012 (The Star) - Last week, Dorab Mistry, an international palm oil industry analyst renowned for his bullish CPO price forecasts, made a different kind of prediction - that Malaysia will only introduce its new palm oil tax policy after the safe execution of Felda Global Ventures Holdings Bhd's (FGVH) estimated US$3bil initial public offering (IPO) by the end of June.

He highlighted several pertinent points, including Felda being one of the beneficiaries (plantation groups with refinery overseas) of the Government's annual three million tonne duty-free CPO quota and the impact on FGVH's profit should the duty-free CPO export quota is revoked, thus leading to discontentment among Felda settlers who represent a key vote bank for the Government at the upcoming 13th General Election.

Coincidentally, the highest concentration of Felda settlers is in Pahang, where Pekan is Prime Minister Datuk Seri Najib Razak's constituency.

For the past eight months, local independent refiners, particularly those without upstream activities, have urged the Government to quickly react to Indonesia's new low palm oil export duty regime. They claim significant margin squeeze as Indonesian refiners get to export at a sizeable discount and can grab more shares in the local refiners' traditional export market under the new duty regime.

Local refiners also want the Government to fully review the existing policy, ie, further reduction in the current CPO export duty of 23% and abolish the duty-free CPO export quota to enable domestic refiners get ample CPO feedstocks.

To a certain extent, market observers are of the view that Dorab's prediction on the introduction of Malaysia's new palm oil tax policy after FGVH's IPO seems to be spot on and will not likely be introduced soon.

Currently, the Government is believed to be deliberating on the recommendations by a London-based consultancy firm hired recently by the Malaysian Palm Oil Board (MPOB) to review the country's CPO export duty policy.

The consultancy firm has made several options, including for Malaysia to continue maintaining its current policy while increasing its CPO export quotas slowly, and to match in full the incentives by the Indonesian export tax structure by adapting Malaysia's current CPO export tax rules to offset the advantages enjoyed by Indonesian exporters.

This will include dismantling some taxes such as the windfall profit levy and the cooking oil subsidy scheme cess in the local industry.

However, some observers are of view that the reform will not be “politically” popular given current circumstances since it may result in an extra tax of up to 20% on smallholders' revenue in relation to their current CPO selling prices.

Meanwhile, palm oil industry players have also been notified on the consultation sessions pertaining to the country's CPO export duty policy with the Plantation Industries and Commodities Ministry (KPPK), as well as MPOB's “palm oil lab” on the Indonesian export duty structure sometime this month.

These latest efforts by the Government strongly reflects that work is very much in the advanced stage for a full revision of the country's CPO export duty policy which has been unchanged since the 1970s.

However, some market players are still most puzzled by the notification on the consultation sessions with KPPK and MPOB, given recent market talk that KPPK had already submitted to the Cabinet its proposed response actions to the Indonesian palm oil export duty structure.