14/09/2011 (Borneo Post) - The nation’s crude palm oil (CPO) exporting activities could be threatened by the tax structure to be imposed by Indonesia in the near term.

The neighbouring republic – which along with Malaysia, the world’s largest producer of CPO – will  be implementing the new tax structure soon, which involves reducing maximum tax rate for CPO exports.

“The Indonesia Palm Oil Association has urged the Indonesian government not to impose higher export taxes on crude than its refined products as it could encourage smuggling; thus, harming the processing industry,” said TA Securities Holdings Bhd’s (TA Securities) analyst Jeremy Loo in a commentary yesterday.

Following the new structure, which would take effect this October 1, a maximum tax of 10 per cent would be introduced, in which the tax rate for refined, bleached and deodorised (RBD) palm olein would be at 13 per cent whereas CPO would be taxed at a maximum of 22.5 per cent.

Comparative-wise, CPO exports figure registered a slight drop of 2.7 per cent to 1.69 million tonnes in August, due to slowing down in trade as some of them were off for most part of the month, especially towards the end of the month since the Hari Raya Aidilfitri coincided with the nation’s National Day, which translated into longer holidays.

“With proposed Indonesian exports tax structure already announced by the republic’s government, we could expect to see some turbulence in September figure,” added Loo.

”However, we are leaving our earnings forecasts unchanged at this juncture, as it is difficult to gauge the quantitative impact of the new tax structure on the Malaysian plantation players,” the analyst added.

Already, August data from the Malaysian Palm Oil Board showed a softening in production where it declined by 4.8 per cent month-on-month to 1.67 million tonnes, moderating its year-to-date growth to 8.2 per cent from 8.9 per cent in previous month.

Additionally, inventory level for August also fell further in August by 5.6 per cent to 1.89 million tonnes after peaking to 2.05 million tonnes, which MPOB said was was in line with the drop in production volume as well as the high base effect in the previous month.

“This is within expectations as the Muslim fasting month of Ramadan falls within this month. On a year-on-year basis, production increased by 3.8 per cent, thanks to normalising yield and weather pattern,” the palm oil board added.

On the positive side, however, some of the nation’s CPO main export  destinations had continued to show increase in demand during the August period especially the US, which registered a 61-per cent monthly growth, followed by India and Pakistan with growth increases of 29.4 per cent and 14.5 per cent, respectively.

Overall, TA Securities maintained its plantation sector’s recommendation as ‘neutral’ with an average price assumption of RM3,300 per tonne for this year, on the back of anticipation that the uncertain global economic outlook would negatively impact equity outlook.

“Sime Darby Bhd and Boustead Bhd would remain as our top stock picks in the sector,” Loo said.