JAKARTA: Malaysia, the world's second-largest palm-oil producer, needs to reform the industry's tax structure to counter new rates in Indonesia that improved the competitiveness of refiners there, according to a trade group.
Without changes to create a so-called level playing field, there will be "a slow death of the refining industry when the independent refiners move away," said Mohammad Jaaffar Ahmad, chief executive of the Palm Oil Refiners Association of Malaysia.
The tax changes by Indonesia last year made local crude palm oil, or CPO, cheaper than in Malaysia, cutting costs for refiners, according to Jaaffar. Southeast Asia's largest economy is seeking to boost the value of commodity shipments, including metals, to raise investment flows and spur economic growth. Bernard Dompok, Malaysia's plantation industries and commodities minister, said that changes are being drawn up.
"The problem is that the refiners are feeling the pinch of the tax changes in Indonesia and they want a level playing field," Dompok told Bloomberg on May 11. "We will be proposing to the government a solution to the problem for the producers and the refiners," he said, without giving details.
Palm oil, the world's most-consumed cooking oil, is used in everything from candy bars to biofuel. Malaysia and largest producer Indonesia account for about 89% of global shipments. Crude palm oil, which has more than doubled in the past decade, traded at 3,095 ringgit (US$993) a metric ton on the Malaysia Derivatives Exchange at 5:56 p.m. yesterday.
"If nothing is done then the industry will face very bleak prospects over time with potential closures," Ivy Ng, an analyst at CIMB Group Holdings Bhd., said in an e-mail, referring to Malaysian refiners. The country may face difficulty attracting investment given the less appealing tax structure compared with Indonesia, Ng wrote in a report dated April 6.
The association wants the Malaysian government to end the practice of allowing the annual tax-free export as much as 3.5 million tons of crude palm oil, boosting raw supplies for local refiners, Jaaffar said in an interview. At the same time, tax rates on Malaysian crude shipments should be cut to less than Indonesia's rate from about 21% to 22%, he said.
"This will give some breathing space to our refiners," said Jaaffar, who spoke in Selangor state on May 15 and last month. "We're not depriving our CPO exporters to export but they must pay tax. But it will be lower than our current duty and the duty that Indonesia pays." (Bloomberg/aph)
MOST VISITED CHANNEL: CURRENT ISSUE, ECONOMY, BUSINESS, MARKET & CORPORATE, CONSUMER