Impact of Indonesia’s new export tax neutral: CIMB

KUALA LUMPUR: CIMB Investment Bank is neutral on the impact of the new Indonesian export tax on the earnings of local planters as at the current price level of crude palm oil (CPO), the landings will not be significant.

"We keep to our neutral rating on the sector and prefer Genting Plantations Bhd and First Resources Ltd for their exposure to the sector," said CIMB senior analyst Ivy Ng in her latest note to investors.

"Our analysis revealed that the new export tax is lower than the old export tax, mainly to reflect the new export levy on palm products that range from US$10-US$50 per tonne," she said.

Indonesia had, two days ago, issued a regulation changed the way export taxes are calculated for crude palm oil and other palm products.

The taxable bands are now expressed in US dollars rather than a percentage of the price.

"The tax revision is intended to help offset the costs exporters must pay alongside the new US$50 export levy that came into effect this month. This is to make it simpler," said Indonesia Finance Ministry head of the fiscal policy Suahasil Nazara.

Under the old system, CPO exports were subject to an escalating tax rate of between 7.5 per cent and 22.5 per cent, depending on how high prices went above US$750 per tonne.

Now, when palm oil prices exceed US$750, CPO exports are subject to a dollar tax rate running from US$3 to US$200 per tonne, as well as the US$50 levy on CPO.

This new export tax rate, is backdated to take effect from 16 July 2015 and this latest revision by Indonesia suggests that the government has lowered the export tax value," said Ng.

"We compare the new export tax rate combined with the recently introduced palm oil export levy against the previous export tax, and found that the effective tax value on exports paid by planters on CPO products, when the CPO price is below US$750 per tonne, is higher under the new tax structure on palm oil exports compared to the old export tax structure," she said.

"However, there are some export tax savings, when the CPO price exceeds US$750 per tonne," she added. Ng is keeping her 'Neutral' rating on the sector due to the unexciting near-term CPO price prospects.