Update COVID-19 in Indonesia: 115,056 confirmed infections, 5,388 deaths (4 August 2020)
5 August 2020 (closed)
USD/IDR (14,647) +60.00 +0.41%
EUR/IDR (17,355) +42.63 +0.25%
Jakarta Composite Index (5,127.05) +52.02 +1.03%
Uncertainty remains about the timing of the implementation of Indonesia's new palm oil export levies. In May 2015 Indonesian President Joko Widodo signed a new regulation stipulating that a USD $50 (per metric ton) levy is to be imposed on crude palm oil (CPO) exports, and a USD $30 (per metric ton) levy on processed palm oil product exports. Proceeds from these export levies will be used to fund the Indonesian government’s biodiesel (subsidy) program. However, implementation of the new regulation has been delayed several times.
The new export levy is in addition to the country's palm oil export tax. However, this does not mean that palm oil exporters have to pay both at the same time. When the government’s benchmark CPO price (which is calculated using international and local palm oil prices) drops below the USD $750 per metric ton threshold, then a zero export tax is implemented (to boost global demand and prices). However, amid the sluggish global economy (especially weak demand from China) the government’s benchmark CPO price has been below the USD $750 threshold since September 2014, implying that the government has failed to obtain much-needed revenue from CPO exports as the export tax has been zero percent since October 2014.
The new levy is therefore a strategy of the government to obtain revenue amid low palm oil prices. The above-mentioned levy kicks in when the CPO export tax becomes zero due to the low CPO price. However, when the price exceeds the USD $750 per ton threshold, then the levy is scrapped meaning that the country’s palm oil exporters will not have to face a double burden in times of higher palm oil prices.
Proceeds from the new levy will be used to fund the government’s biofuel subsidy program. In February 2015 the Indonesian government announced to raise biofuel subsidies from IDR 1,500 per liter to IDR 4,000 per liter in a bid to protect domestic biofuel producers (compensating them for the price differences between regular diesel and biodiesel that have been caused by low global petroleum prices since mid-2014). Besides funding these subsidies, proceeds from the new export levies will be channelled to replanting, research and human resources development in the palm oil industry.
Originally the new palm oil export levies would take effect in the fourth week of May. However, the levies have been delayed because of administrative issues and delays in the establishment of the public body that will collect and manage the funds. Earlier this week, Indonesian Coordinating Minister of Economic Affairs Sofyan Djalil said the implementation would be pushed back to 1 July 2015.
Market players say that the delay is bearish to the markets and makes it harder for investors to make decisions. It shows that the government lacks capability to implement and communicate clear and well designed policies.