Green light for CPO export tax cut

PETALING JAYA: THE Cabinet has agreed to lower crude palm oil (CPO) export tax from the current 23 per cent as a means to stem falling palm oil prices, Plantation Industry and Commodities Minister Tan Sri Bernard Dompok said.

CPO prices had been on the downtrend for months but three weeks ago, it suddenly plunged. On October 2, palm oil posted its biggest loss in nearly three years. It tumbled nine per cent to RM2,255 per tonne - its steepest daily drop since the 2008 financial crisis.

But since news reports of a possible cut in CPO tax surfaced a week ago, palm oil prices had risen and started to stabilise at around RM2,400 per tonne.

Yesterday, the third-month benchmark CPO futures traded RM19 higher to close at RM2,457 per tonne.

"The Cabinet has approved the lowering of the CPO tax, but we've not decided on the quantum," Dompok said, suggesting that it might be known tomorrow.

He was speaking to reporters after officiating at the opening of the International Rubber Technology and Economic Congress 2012 here yesterday.

Palm Oil Refiners Association of Malaysia (Poram) had proposed to the government to lower the CPO export tax to between eight and 10 per cent and do away with duty-free CPO.

The association suggested that by mirroring the tax margin between Indonesia's CPO and refined palm oil, Malaysia's refiners can at least stand a chance to compete based on existing infrastructure and plant efficiency.

Oil palm planters, while admitting the lowering of the 23 per cent CPO tax would allow refiners be more competitive, said a more practical rate is between four and five per cent. "The proposed rate of between eight to 10 per cent is still prohibitive. If the CPO tax rate is lowered to between four and five per cent, it is still bearable for planters," a Sabah-based planter reportedly said.

To a query if the government plans to do away with duty-free CPO, Dompok said: "I'm aware that Poram's request is a two-pronged mechanism. All these details will be discussed this Friday."

Yesterday, Malaysian Palm Oil Board reported that September palm oil stocks rose 17 per cent to 2.48 million tonnes from 2.11 million tonnes in August.

In response, Dompok said both Indonesia and Malaysia, the world's two biggest palm oil producers, are seeking to support prices by reducing stocks through more domestic usage of the commodity. "We want to create more domestic demand for CPO by extending biodiesel usage nationwide. Currently, the B5 mandate only covers petrol stations in the central states of Peninsular Malaysia," he said.

B5 is a blend of 95 per cent regular diesel with 5 per cent palm biodiesel.

"When the B5 mandate is extended nationwide, the production of biodiesel will take up about 500,000 tonnes of palm oil. This will help to considerably reduce the current high palm oil stock level," he said.

"The government has, so far, spent more than RM50 million to pay for the blending facilities at petroleum companies' depots. We hope to extend this initiative to all 36 fuel depots nationwide by year-end," he added.