The Effect of Export Tax on Indonesia's Crude Palm Oil (CPO) Export Competitiveness

Author(s): Amzul Rifin

Source: ASEAN Economic Bulletin, Vol. 27, No. 2 (August 2010), pp. 173-184
Published by: Institute of Southeast Asian Studies (ISEAS)
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ASEAN Economic Bulletin Vol. 27, No. 2
(2010), pp.
173-84 ISSN 0217-4472
print / ISSN 1793-2831 electronic
DOI: 10.1355/ae27-2b
The Effect of
Export
Tax on
Indonesia's Crude Palm Oil
(CPO)
Export Competitiveness
Amzul Rifin
Crude
palm
oil
(CPO)
is one
of
the main
export
commodities
of
Indonesia. Besides an
export
commodity ,
it is also an essential raw material in
producing cooking
oil. In order to secure
the
availability of
domestic
CPO,
the
government of
Indonesia
imposed
an
export
tax
policy
in
September
2004. The
objective of
the
export
tax was to control the
price of cooking
oil at
an
affordable
rate. The
objective of
this
study
is to describe the
export
tax
policy
on CPO
imposed by
the Indonesian
government
and to
analyse
the
effect of
the
export
tax on
Indonesia's CPO
export competitiveness compared
with
Malaysia ,
the main
competitor.
An
export
ratio
equation
between Indonesia and
Malaysia
is constructed
using monthly
data. The
dependent
variable is CPO
export of
both countries
,
meanwhile the
independent
variables
include
price
ratio
, export
tax
difference
, refined palm
oil
export
ratio
,
and
exchange
rate
ratio. The result shows that Indonesia's
export
tax
policy
will cause CPO
export
com-
petitiveness
to decrease.
Keywords:
Crude
palm
oil
(CPO), export tax,
Indonesia.
I. Introduction
Palm oil has
played
an
important
role in the
Indonesian
economy. First, palm
oil is considered
to be a
strategic
sector since it is the raw material
of the main
cooking
oil consumed
by
Indonesians
(Soetrisno
and
Winahyu 1991).
Over the
years,
Indonesia's domestic
consumption
of
palm
oil has
increased
steadily.
In
1990,
the
consumption
of
palm
oil was around 1.3 million tons and in 2007
the
consumption
increased to 4.87 million tons
(United
States
Department
of
Agriculture 2008).
It
was
projected
that 77
per
cent of
palm
oil
domestic
consumption
was utilized in 2008
(CIC
2004).
Second, palm
oil is a labour-intensive sector
and it contributes to
employment.
As
palm
oil
plantations
are located
mainly
outside Java
island,
this sector is
important
for
poverty
alleviation in
the other islands. In
1997,
Indonesia's oil
palm
industry employed
over 2 million
people (Casson
1999).
Thirdly, palm
oil is a
strategic commodity
for
Indonesia's
exports.
In
2007, palm
oil
export
ASEAN Economic Bulletin 173 Vol.
27,
No.
2, August
2010
2010 ISEAS
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reached US$7.8 million,
about 6.9
per
cent of
Indonesia's total
export
which has increased from
4
per
cent in 2003
(UN
COMTRADE
2008).
Indonesia and
Malaysia
are the
major
producers
of
palm
oil. Both countries contribute
almost 87
per
cent of the total world
production
in 2007. Indonesia is the
largest producer
of
palm
oil with the
production
of 18.3 million tons
followed
by Malaysia
with 17.4 million tons.
Meanwhile,
in the
export
market,
both countries
contribute 91
per
cent of the total world
palm
oil
export,
with
Malaysia being
the
highest
with 13.7
million
tons,
followed
by
Indonesia with 13.3
million tons in 2007
(United
States
Department
of
Agriculture 2008).
In
September 1994,
in order to maintain the
availability
of
palm
oil in the domestic
market,
the
Indonesian
government
introduced an
export
tax.
Based on a Decree of the
Ministry
of Finance No.
439/KMK.0 17/1 994,
an
export
tax was
imposed
to
control the
price
of
cooking oil,
which used crude
palm
oil
(CPO)
as its main
component. Moreover,
the CPO
export
tax was
imposed
to
encourage
refined
palm
oil
industry
to
develop by setting
low
CPO
prices.
The
export
tax covered four
types
of
palm
oil
products.
These are:
CPO,
refined
bleached deodorized
palm
oil
(RBD PO),
crude
olein
(CRD olein),
and refined bleached
deodorized olein
(RBD olein).
Several
empirical
studies on the
impact
of
palm
oil
export
tax on Indonesian
economy
has been
conducted, namely
Larson
(1996), Marks, Larson,
and
Pomeroy (1998),
Susila
(2004),
and Putri
et al.
(2006).
These studies reveal that the
export
tax
policy
will
mainly
benefit consumers and hurt
farmers.
Hasan, Reed,
and Marchant
(2001)
analyse specifically
the effect of
palm
oil
export
tax on Indonesia's
export competitiveness.
The
authors use
export
share as the instrument to
measure
competitiveness.
Meanwhile
Mohammad,
Fauzi,
and Ramli
(1999)
and Amiruddin
(2003)
analyse
the interaction between Indonesia's and
Malaysia's palm
oil
industry
in the
presence
of
government policy
such as
export
tax.
This
study
will focus on CPO rather than
palm
oil,
which consists of CPO and refined
palm oil,
since most of Indonesia's
export
is in the form of
CPO.
Moreover,
other studies focus on the effect
of the
export
tax on welfare while little attention is
given
to the effect on
export.
The
objective
of the
study
is to describe the
export
tax
policy imposed
on CPO and how it affects Indonesia's CPO
export
competitiveness compared
with its main
rival,
Malaysia.
In
addition,
the
export
tax calculation in
this article is more
specific compared
with other
articles
published.
A brief overview of the
export
tax
policy
that
has been
imposed
in Indonesia is
provided
in
section II. A discussion on the
export
tax
policy
in
Indonesia and
Malaysia
is
provided
in section III.
In sections IV and
V,
the model and data used in
the
empirical analysis
will be
explained.
This is
followed
by
a discussion of the main result in
section VI and
lastly,
some conclusions are
presented
in section VII.
II. Crude Palm Oil
Export
Tax
Policy
in
Indonesia
The
government
of Indonesia has issued several
regulations regarding palm
oil
export.
Before
1978, palm
oil was an
export-oriented commodity.
Production and
export
volume increased
rapidly,
and
export
volume reached 72-99
per
cent of the
total
production (Djauhari
and Pasaribu
1996).
Since
1978,
with the issue of
government policy
concerning
the allocation of
palm
oil for domestic
purposes, palm
oil was no
longer
an
export-
oriented
product.
This
policy
was
implemented
because of the
scarcity
of
palm
oil as a raw
material for
cooking
oil. This
policy
caused
palm
oil
exports
to decrease. In June
1991,
the
government
abolished the
policy by eliminating
the domestic
quota
of
palm
oil in order to increase
its
export
and attract more investments to the
palm
oil sector
(Pahan 2008).
The trade liberalization
policy
in 1991 resulted
in an increase in both domestic
price
of
cooking
oil and the volume of
palm
oil
export.
Concerned
with the
higher price
of
cooking oil,
the
government
issued a new
policy by imposing
export
taxes on
palm
oil
products
in
September
ASEAN Economic Bulletin 174 Vol.
27,
No.
2, August
2010
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1994. The
government
issued a Decree of
Ministry
of Finance No.
439/KMK.0 17/1 994 to
tax
CPO,
RBD
PO,
CRD olein and RBD olein.
The formula to calculate the
export
tax was
as follows:
Export
Tax
=
Export
volume x
Export
tariff
x
(Base
Price
-
FOB
Price)
x
Exchange
rate
The Free on Board
(FOB) price
is determined
by
the
Ministry
of Finance
every
month based on
average prices
of the world market
during
the
previous
two
weeks,
while the base
price
is the
maximum
export price
which was free from
export
tax. The tax rate would
get
smaller as the
difference between base
price
and
export price
gets bigger.
The
complete export duty
structure for
crude
palm
oil can be seen in Table 1.
The decree was
implemented up
to June 1997.
During
the
implementation,
the effective
export
tax rate1 of CPO
ranged
from 0
per
cent in
August
1996 to the
highest
of 22
per
cent in December
1994
(Figure 1).
In
July 1997,
based on the Decree of
Ministry
of Finance No.
300/KMK/1997
the calculation
method for
export
tax was
changed
to the
following
formula:
Export
Tax
=
Export
tax tariff x Check
price
x
Export
volume x
exchange
rate
However,
when the check
price
has not been
determined
yet,
the calculation of the
export
tax is
as follows:
Export
Tax
=
Export
tax tariff x FOB value
x
exchange
rate
The FOB value is the total
export
value stated on
the
Commodity Export Report
or on the Certain
Commodity Export Report.
The new calculation differs from the earlier
formula. In the
previous calculation,
the
export
tax
depends only
on the difference between the FOB
price
and the base
price,
and
only
the base
price
is
determined
by
the
government;
meanwhile other
variables,
such as base
price
and
export tariff,
are
fixed. The new calculation of
export
tax
depends
on the
export
tax tariff and the check
price
determined
by
the
government. Therefore,
the
government
can determine the
magnitude
of the
export
tax
depending
on the
price
of domestic
cooking
oil. When the domestic
price
of
cooking
oil is
high,
the
government
will
impose
a
high
check
price
and
export
tariff.
TABLE 1
Export Duty
Structure of Indonesian Crude Palm Oil
According
to
Decree of
Ministry
of Finance
No.
439/KMK.0
1
7/1 994
Product Price Levels
Duty/ton
Crude Palm Oil
(CPO)
Base Price: US$435
Additional: 0 %
First 35
(435-470)
60%
Next 35
(470-505)
56% x
(EP
-
BP)
Next 35
(505-540)
52% x
(EP
-
BP)
Next 35
(540-575)
48% x
(EP
-
BP)
Next 35
(575-610)
44% x
(EP
-
BP)
Balance
(P>610)
40% x
(EP
-
BP)
Note: EP:
export price;
BP: base
price.
ASEAN Economic Bulletin 175 Vol.
27,
No.
2, August
2010
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16% r
-
14%

/'

g
12%
-
-/

'^' A.

t
10% J-
'

8.
'
A
uj 8%

'

IX

f-

9
' / '
i-v
r'

9
e%.

yj
'
-
i-v
r'


' /

4%

'-j

2%

'4

0%
V
^ /
Years
FIGURE 1
Effective
Export
Tax Rate of Crude Palm Oil
(September
1994-June
1997)
Source: Author's calculation.
The
export
tax tariff is determined
by
the
Minister for
Finance,
while the check
price
is
determined
by
the
Ministry
of Trade on a
monthly
basis based on the international
price
of CPO in
Rotterdam,
Netherlands.
During January-April
1998 the
government
banned
palm
oil
export
due
to limited
supply
of domestic
palm
oil
product.
In
addition,
the effective
export
tax rate fluctuated at
the
beginning
of the
policy implementation
in
1997 and 1998. From October 2000 until June
2007,
the effective
export
tax was
relatively
stable
but in
July
2007 the
government
increased the
export
tax tariff from 1.5
per
cent to 6.5
per cent,
causing
the effective
export
tax to increase
(Figures
2 and
3).
In
September
2007 the
government
issued
another decree
regarding
the
export
tax tariff. Based
on the
decree,
the
export
tax tariff was set to a
reference
price
based on the international
price
of
crude
palm
oil in Rotterdam. Because of the
high
international
price
of
CPO,
this decree was issued
to secure the CPO for domestic
consumption
especially
for
making cooking
oil. The decree was
revised in
February
2008 when the international
price kept increasing.
The
price
reached its
peak
in
March 2008 and
began
to decline afterwards. With
the
sharp price decrease,
the
government again
revised the
regulation concerning
the
export
tax
tariff in October and December 2008
(Table 2).
In
the latest
regulation,
the minimum
price
when the
export
tax was
implemented
increased from
US$550/ton
to
US$700/ton, causing
the
export
tax
in November to
drop
to 0.
To sum
up,
the
government implements export
tax on
palm
oil
products
to
guarantee
the
availability
of CPO for
producing cooking
oil at
an affordable
price
and to
develop
the downstream
industry
of
palm
oil. The calculation of
export
tax
has
changed
twice
during
its
implementation.
The
first
export
tax was measured
using
the difference
of
export price
and base
multiplied by
a certain
tariff. It was later
changed
based on the
export
tax
tariff and check
price. During
the first few
years,
the
export
tax tariff was constant and the check
price
was determined on a
monthly basis, although
for several
years
the check
price
was constant.
Recently,
the
export
tax tariff fluctuates
depending
on the international
price
of CPO.
ASEAN Economic Bulletin 176 Vol.
27,
No.
2, August
2010
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FIGURE 2
Effective
Export
Tax Rate of Crude Palm Oil
(July
1997-December
2002)
70%
60%
j-r

50%

'

r '
8.
40%
1
UJ '
A

A
'
~
30%
'
<D
3=
Ul
20%

10%

o::-
'
-
^
N<# ^ ^
Years
Source: Author's calculation.
FIGURE 3
Effective
Export
Tax Rate of Crude Palm Oil
(January
2003-December
2008)
25%

a"

tt'~
I
'5%

I
|
,0%

J
|
5%

U
0%

co lo <o oo
8 8
CM CM CM CM CM CM
Years
Source: Author's calculation.
ASEAN Economic Bulletin 177 Vol.
27,
No.
2, August
2010
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All use subject to JSTOR Terms and Conditions
TABLE 2
The
Export
Tax Tariff of CPO based on Decree of
Ministry
of Finance No.
159/PMK.0 11/2008
and
No.
223/PMK.01 1/2008
Reference
Price
(US$1 ton) Export
Tax
Tariff (%)
< 700 0
701 <P<750 1.5
751
<
P < 800 3
801
<
P < 850 4.5
851
<
P < 900 6
901
<
P < 950 7.5
951 <P< 1000 10
1001
<
P < 1050 12.5
1051 <P< 1100 15
1101 <P< 1150 17.5
1151 <P< 1200 20
1201
<
P < 1250 22.5
P
>
1251 25
Source:
Ministry
of
Finance,
2008.
III. The
Comparison
of the
Export
Tax
Policy
between Indonesia and
Malaysia
The CPO
export
tax calculation in
Malaysia
is
similar to the calculation used
by
the Indonesian
government
from
September
1994 to June 1997.
The formula is based on the difference between
export price
and base
price
which is fixed at
RM650
(Table 3).
Comparing
the effective
export
tax between
Indonesia and
Malaysia,
it can be inferred that
during
1998 until June
1999,
the Indonesian CPO
effective
export
tax was
higher
than
Malaysia's
but after that
period Malaysia's
effective
export
tax was
higher (Figure 4).
This does not indicate
that Indonesia's CPO
export
is more
competitive
than
Malaysia's
since one of the
objectives
of the
Malaysian export
tax was to
encourage
its
palm
oil
processed industry
to
gain higher
value addedness.
IV.
Empirical Analysis
The
export
ratio
equation investigates
Indonesia's
CPO
export competitiveness compared
with
TABLE 3
Duty
Rates on
Export
of Crude Palm Oil
from
Malaysia
Price
(RM/ton) Duty (%)
First RM650 0
Next additional RM50 10
Next additional RM50 15
Next additional RM50 20
Next additional RM50 25
Plus on the balance 30
Source: Amiruddin
(2003).
Malaysia.
The
dependent
and
independent
relative form
comparing
Indonesia
against
Malaysia
is to
incorporate
the effects of
competition
between the two countries.
By using
the relative
form,
it can
incorporate
a third-
country
effect into the model which minimizes
specification
error
arising
from the fact that trade
flows
depend
on cost of
purchasing goods
not
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2010
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FIGURE 4
Malaysia
and Indonesia's CPO Effective
Export
Tax
(September
1994-December
2007)
70%
60% rr
s
u

50%
*
&
40%

1
I M
g
30% 1
S
20%
~
V

^

['f ,
^ ^ ^
^ ^ ^ </ / /
Years

Malaysia
Indonesia
Source: Author's calculation.
only
from an
exporting country
but from other
competitors (Jin
and Koo
2003).
Besides Jin and
Koo
(2003), Xing
and Wan
(2006)
also use ratio
variable as an
dependent
variable to
explain
the
relation between FDI and
exchange
rate in Asian
countries.
The
equation
is written as follows:
( P / '
/ ' v
i
111
I
/
xi
'
I , /
v
CPIi i
111
V
I
=ao+i-ln
,
p /
'AM
V
)t
'
rM/
'
/C
/CP!
V
/C
/CP!
riMjt
( ERl/ }
/CP
1
1
+
'-ln
ER/
I
/C"m),
+
a3 (TXj
-
TX
M)t
i f XRi 1
+
a4.ln
i
-
'
+
t '
U rm)
-
'
+
t '
where
X : CPO
export (ton)
P : domestic
price
of CPO
(rupiah
or
ringgit)
ER :
exchange
rate
(rupiah/US$
or
ringgit/US$)
TX : effective
export
tax
(%)
XR : refined
palm
oil
export (ton)
CPI : consumer
price
index
(2000
=
100)
subscript
I indicates
Indonesia,
and M
Malaysia.
The
dependent
variable is the ratio between
Indonesia's CPO
export
and
Malaysia's
CPO
export.
The
equation investigates
the com-
petitiveness
of Indonesia's CPO
export compared
with
Malaysia's
CPO
export.
The first
independent
variable is the real
domestic
price
between the two countries which is
the
proxy
of
production
cost. The coefficient is
expected
to be
negative;
it means that when the
price
ratio decreases the
export
ratio is
predicted
to increase.
The second variable is real
exchange
rate. The
coefficient is
expected
to be
positive.
When the
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No.
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2010
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rupiah depreciates
relative to the
ringgit,
the
price
of CPO in the terms of
rupiah
will
decrease,
hence
export
ratio will increase.
The next variable is refined
palm
oil ratio. The
inclusion of the variable is to
analyse
the effect of
the
higher
value-added
palm
oil
product
on CPO
export.
The coefficient is
expected
to be
negative.
It assumes that the two
products
are substitute
products.
It means that
higher
refined
palm
oil
export
will decrease
export
of CPO since it is
utilized to
produce
refined
palm
oil.
The last variable is the difference between the
two countries' effective
export
tax. The effective
export
tax variable
analyses
the effect of both
countries
export
tax
policy
to the
export
ratio.
Starting
from
July 1997,
the two countries
implemented export
tax
policies
with different
methods of calculation. The coefficient is
expected
to be
negative,
which means that a smaller
difference in effective
export
tax will increase
Indonesia's
export competitiveness
to
Malaysia.
In
determining
the
adequacy
of the
model,
several tests are conducted. The
Jacque-Bera
statistic is utilized to test the normal distribution of
the standardized residual or the
normality
test. If
the residual is
normally
distributed than the
Jacque-Bera
stastic should not be
significant.
The
Lagrange Multiplier (LM)
test is conducted to
detect serial correlation. The null
hypothesis
is
that there is no serial correlation
problem. Lastly,
the
Breusch-Pagan-Godfrey (BPG)
is used to test
for
heteroscedasticity.
The null
hypothesis
is that
there is no
heteroscedasticity.
V. Data Sources
The data used in
constructing
the
export
ratio
equation
is
monthly
data from
January
2001 until
December
2007,
which is collected from various
sources. CPO and refined
palm
oil
export
of
Indonesia was
compiled
from Statistics Indonesia.
Domestic
price
of CPO in Indonesia is taken from
the Statistical Estate of Indonesia. Nominal
exchange
rate and consumer
price
index of
Indonesia and
Malaysia
are from the International
Financial Statistics
(IFS)
database
of the International
Monetary
Fund
(IMF).
Meanwhile,
the data of
Malaysia's palm
oil came
from the
Malaysia
Palm Oil Board
(MPOB).
The
effective
export
tax is calculated
by
the author.
VI. Estimation Result
The result of the
equation
which
explains
Indonesia's
competitiveness compared
with
Malaysia
is
reported
in Table 4 which is calculated
using ordinary
least
square (OLS)
method. Two
equations
are constructed: the first is that all
variables are in the same time frame
(no lag
variables);
on the second
equation
the
price
ratio is
in the
lag
form. The
objective
of
incorporating
the
lag
variable is to take into account the information
lag
of the
price
between the two countries.
The
diagnostic
test on both
equations
show that
the residual is
normally
distributed and there is
no indication of serial correlation and hetero-
scedasticity.
In the first
equation,
the result
indicates that all the variables are
significant
except
for the
price
ratio. In
addition, only
refined
palm
oil
export
ratio
sign
is different from the
hypothesis
which is
negative.
The difference exists
because there is an interaction between the two
countries'
palm
oil
industry. Malaysia
is the fifth
largest
Indonesian CPO
export
destination in 2007
(UN
COMTRADE
2008). Although Malaysia
is
the second
largest producer
of
palm oil,
the
country
also
imported palm
oil
mainly
in the form
of
CPO, especially
from Indonesia. This is caused
by
three reasons:
first,
Indonesia is the
largest
producer
of
palm
oil.
Second, recently
several
Malaysian companies
invested in Indonesia in the
palm
oil
sector,
such as
opening palm
oil estates
and CPO refineries. In
2002,
these
companies
planted
almost
250,000
hectares of
palm
tree in
Indonesia,
which is about 5
per
cent of the total
area of
palm
trees
(Teoh 2002).
These
companies
export
CPO to
Malaysia
in order to be
processed
into refined
palm
oil.
Lastly,
CPO
imported
from
Indonesia2 is needed to
supply
the
palm
oil
industry
in
Malaysia
for
producing
several
products
of refined
palm
oil which is to be
exported.
In order to
explain
the
positive
coefficient of the
refined
palm
oil
ratio,
the variable must be
ASEAN Economic Bulletin 180 Vol.
27,
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2, August
2010
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TABLE 4
The
Export
Ratio Estimates
Variables
Equation
1
Equation
2
Constant -11.5155 -12.1926
(-2.9123***) (-3.0238***)
Real Price Ratio -0.5147
(-1.3772)
Real Price Ratio
(-1)
-0.7576
(-2.0955**)
Real
Exchange
Rate Ratio 1.5971 1.7117
(3.2021***) (3.3858***)
Effective
Export
Tax Diference -0.0971 -0.1022
(-5.2504***) (-5.2387***)
Refined Palm Oil
Export
Ratio 0.6113 0.6482
(5.4604***) (5.7995***)
R2 0.5174 0.5169
F-stat 21.1756 20.8601
Diagnostic
test
Jarque-Bera
0.5318 0.5246
LM
x2 (1)
0.2429 0.2455
LM
x2 (2)
0.3263 0.3473
LM
x2 (3)
0.2637 0.3081
LM
x2 (4)
0.3925 0.4025
BPG
x2
0.5007 0.2892
Note: The number in the
parenthesis
is the t value.
***
significant
at 1
per
cent.
**
significant
at 5
per
cent.
analysed.
An increase in Indonesia's refined
palm
oil
export
will cause a decrease in CPO
export
including exports
to
Malaysia.
Hence, Malaysia's
CPO which is intended to be
exported
will be used
to
produce
refined
palm
oil to
replace
the CPO
import
from Indonesia. As a
result, Malaysia's
CPO
export
will decrease.
Therefore,
when the
refined
palm
oil
export
ratio
increases,
caused
by
an increase in Indonesia's refined
palm
oil
export
and decrease in
Malaysia's
refined
palm
oil
export,
it is
predicted
to increase the CPO
export
ratio. This is caused
by
the decrease in
Malaysia's
CPO
export
which is
larger
than the decrease in
CPO
export
of Indonesia.
A 1
per
cent
depreciation
of the
rupiah
com-
pared
to the
ringgit
is
predicted
to increase
export
ratio
by
1.5971
per
cent.
Depreciation
in the
rupiah
will make CPO from Indonesia
cheaper
which
creates more incentive for
producers
to
export
their
CPO. Jin and Koo
(2003)
also reveal that
exchange
rate is one of the
important
factors in
determining
the U.S. market share of wheat in East Asia.
The focus of this
paper
is on the effective
export
tax variable. The
implementation
of
export
tax
will decrease the domestic
price,
while
increasing
the
export price. Figure
5 illustrates the effect
of
export
tax at a rate of t. The domestic
price
of
export
falls to
ph reducing
the sum of
ASEAN Economic Bulletin 181 Vol.
27,
No.
2, August
2010
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FIGURE 5
The
Imposition
of
Export
Tax
Price

' y
s
'A
p;=pt+t

v
pF
'Byf'
j
|
'
D
!



i

i

2 - '

xt XF Quantity
of
exports
source:
Helpman
and
Krugman (1959).
consumer and
producer surplus by
the area of
pFDCpt. However,
the tax
yields
revenue
equal
to after tax volume
multiplied by
the tax rate or
the area of
p*tACpt.
The loss of tax is
equal
to
the area of
BCD,
while a terms of trade
gain
equal
to the area of
p*tABpF (Helpman
and
Krugman 1989).
The econometric result reveals that a 1
per
cent
increase in the effective
export
tax difference is
predicted
to decrease the CPO
export
ratio
by
0.0971
per
cent. Therefore an increase in
Indonesia's effective
export
tax relative to
Malaysia
will decrease Indonesia's CPO
export assuming
a
constant
Malaysia's
CPO
export.
After
July 1997,
the
export
tax calculation was different between the
two countries. Indonesia relied on the
figure
determined
by
the
government;
meanwhile
Malaysia's
calculation
depended
on the FOB
price
of CPO which is determined
by
the market.
Hence,
when Indonesia's
government
increased either
check
price
or the
export
tax
rate,
it will decrease
the
competitiveness
of CPO
export compared
to
Malaysia.
This
findings support
the result of
Hasan,
Reed,
and Marchant
(2001)
which showed that the
imposition
of
export
tax has
long-lasting, negative
effects on the
competitiveness
of the Indonesian
palm
oil
industry.
On the other
hand,
this
finding
indicates that the
export
tax
policy
has been able to
meet one of its
objectives,
which is to limit CPO
export
in order to
supply
to domestic refined
palm
oil
industry.
As
argued by
Susila
(2004)
the
policy
has been an effective instrument to control domestic
CPO and the
price
of
cooking
oil.
The second
equation employs
a one month
lag
of
price
ratio. The result indicates that the
price
ratio
becomes
significant
at 5
per
cent level. This shows
that the
export
ratio is influenced
by
the one month
lag
of
price
ratio instead of the
price
ratio in the
same month. The other variables have
relatively
the
same coefficient with the first
equation.
Comparing
with other coefficients of the
independent variables,
the effect of
export
tax is
relatively
small. On the other
hand,
only
the
export
tax variable is under the control of the
government. Therefore,
the
government
can
determine its level such as in the case when the
international
price
decreases,
the
government
can
set the
export
tax to 0
per
cent.
ASEAN Economic Bulletin 182 Vol.
27,
No.
2, August
2010
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The
implementation
of
export
tax has
conflicting
results.
By imposing export
tax,
CPO
export
will
decrease
but,
on the other
hand,
the
government
needs to control the
availability
of domestic CPO
to be
processed
into
cooking
oil and to
keep
the
price
affordable.
Therefore,
the
government
must
correctly
determine the
magnitude
of the
export
tax
which at least minimizes the
negative
effect of both
objectives.
The
imposing
of
export
tax tariff based
on the international
price
is a
proper policy
to
protect
the
cooking
oil consumer and also to
support
farmers and
exporters.
VII. Conclusion
Export
tax
policy
has been
imposed
since 1994 and
the calculation was
changed
in 1997. In
September
2007, coping
with the
high
international
price
of
CPO,
the
government
set the
export
tax tariff
according
to the international
price
of CPO.
By
imposing
the
export
tax
policy,
the Indonesia's CPO
export competitiveness
will decrease.
The decrease of the
export competitiveness
has
positive
and
negative impacts.
The
policy
will hurt
the
palm
oil
industry
since it causes
exports
to
decrease.
Meanwhile,
the
positive impact
is that
the decrease in
competitiveness
will
hopefully
encourage
the CPO
producer
to sell the
product
domestically
in order to
process
it into refined
palm
oil which has
greater
value added than CPO.
This will make it more
profitable
to
export
the
product
in the form of refined
palm
oil.
NOTES
The author wishes to thank Professor
Masayoshi
Honma
(University
of
Tokyo),
Professor
Yuqing Xing (National
Graduate Institute for
Policy Studies)
and Dr
Jayant
Menon
(Asian Development Bank)
for
providing
useful
comments and
suggestions.
1. From the
period
of
September
1994-June
1997,
effective
export
tax is calculated as follows:
f(FOB-BP)*TR'
I J
where FOB is the FOB CPO
price,
BP is the base
price
and TR is the CPO tax rate. Meanwhile the second
method which is
implemented
from
July
1997 is calculated as follows:
where CP is the check
price
and P is the international
price
of CPO.
2. From 1990 to
2007,
in
average
83.24
per
cent of
Malaysia's
CPO
import
came from Indonesia.
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