Export levy to balance the CPO price rally

by SHAHEERA AZNAM SHAH/ pic by MUHD AMIN NAHARUL

THE activation of the export duty for crude palm oil (CPO) purchases after a long suspension is practical as the commodity has been performing progressively since its low point last year, said Singapore-based Palm Oil Analytics owner and co-founder Dr Sathia Varqa.

Last Friday, the government raised the export levy for January buying to 5% from the exempted rate currently, the first time since August last year, according to the Malaysian Palm Oil Board (MPOB).

“I think the export tax coming in after months of suspension is due to the relief in the industry as the inventory levels have come down since January. The stocks, although it is not as low as what the market expected, is still significantly lower than in 2018 at more than three million tonnes.

“I think the government is comfortable now that the prices are bullish due to the mix of both the fundamentals and the market sentiment. Now is the time to reimpose the levy,” Sathia told The Malaysian Reserve.

However, he added that the new tax structure will pull Malaysia into a competition with Indonesia if the latter decides to maintain its current tax structure of the commodity.

“While prices for Malaysia’s palm oil will be higher because of the levy, it also means that Malaysia will be in competition with Indonesia. Currently, there is no export tax on Indonesian palm oil, including its biodiesel levy.

“Malaysia’s CPO export prices will then be higher than Indonesia. We would have to see what Indonesia will do with its tax structure,” he said.

Citing the Malaysian Royal Customs Department last Friday, MPOB said the reference point for January’s buying is at RM2,571.16 per tonne.

The shipment levy on CPO exports from Malaysia was waived in September 2018 due to the volatility of the commodity prices. Malaysia had imposed a 4.5% levy on the CPO shipment in the prior month.

In May, the government introduced a tax exemption on CPO’s export from May 1 until Dec 31 this year to encourage palm oil buying by its current importers and other countries when the prices reached above RM2,250.

The Indonesian government has suspended its export tax imposed on CPO and the commodity’s derivative products until next year to help ease the financial burdens of its palm oil producer growers.

The Bursa Malaysia Plantation Index fell 0.49% last Friday to 7,542.57, the biggest move since the 1.82% rise on Dec 9.

The index has advanced 15% in the past 52 weeks, giving its members a total market capitalisation of RM141.1 billion.

According to Bursa Malaysia Derivatives last Friday, palm oil delivery for February rose 0.8% to RM2,915 tonne.

Apart from the export tax, the government is currently mulling to reintroduce a windfall tax on oil palm planters and to be channelled back to the industry.

At present, the windfall tax is imposed on Malaysia’s palm oil sector with palm planters in Peninsular Malaysia subjected to a 15% levy if the CPO price exceeds above RM2,500 per tonne.

In Sabah and Sarawak, planters are subjected to a lower rate of 7.5% if the palm oil price exceeds RM3,000 per tonne. However, the planters are imposed with a separate sales tax of 7.5% in Sabah and 5% in Sarawak.