Indonesia to raise export duty on crude palm oil to 10%

Indonesia will increase export duty on crude palm oil (CPO) to 10% from the current 7.5% to finance higher subsidies for biodiesel, the country’s chief economy minister said on Thursday.

The levy will be introduced after a Finance Ministry regulation is published, Eirlanggi Hartarto said.

Indonesia, the world’s largest palm oil producer, collects taxes to subsidize its mandatory biodiesel program, which will increase the biofuel’s content from the current 35% to 40% (B40) from January 1.

The higher concentration is expected to increase the need for subsidies.

BPDPKS, the agency responsible for collecting and managing palm oil funds, estimated in November that increasing the mandatory biodiesel content to 40% would increase the required subsidy by 68%.

“There will be funding from BPDPKS … First, we will increase the levy to 10%,” Eirlangga said when asked about subsidy funding.

Palm oil currently costs about $400 a ton more than crude oil.

Indonesia currently charges a 7.5% levy on CPO exports, while a levy on more refined palm oil products is charged between 3% and 6% of the base price.

Airlangga did not specify the new tax rates on refined palm oil products.

GAPKI palm oil group chairman Eddy Martono said the higher duty would make Indonesian exports less competitive.

“Compared to Malaysian palm oil, ours costs more because of duties, export duty and domestic obligations. All these are onerous,” he said.

The benchmark Kuala Lumpur FCPO1 palm oil contract, which fell 3.58 percent earlier on Thursday, trimmed most of its losses after Airlangga’s comment to close at MYR 4512 ($1,001.44)

A senior energy ministry official said the government plans to allocate 15.62 million kiloliters of unblended biodiesel to fuel retailers next year, up from 13.4 million kiloliters allocated for B35 this year.

Tags: Indonesia, palm oil