The new export tax is expressed in dollars rather than a percentage of the price. 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$10-50 per tonne. We are neutral on the new export tax as its impact on planters’ earnings at the current CPO price level is not significant. We keep to our Neutral rating on the sector and prefer Genting Plantations and First Resources for exposure to the sector.
Indonesia has issued a regulation that changes the way export taxes are calculated for crude palm oil and other palm products, a Finance Ministry official said on Tuesday, with amounts due now expressed in 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," Suahasil Nazara, head of the fiscal policy office told reporters. Under the old system, crude palm oil (CPO) exports were subject to an escalating tax rate of between 7.5% and 22.5%, 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. The new export tax rate is effective from 16 July 2015.
What We Think
This came as a slight surprise to the market and we are neutral on the news. We believe that the changes to the export tax rate for the various palm products were made following the recent introduction of the export levy, which is applicable when CPO price falls below US$750 per tonne (see Figure 4). Our calculation reveals that the new absolute export tax rate on CPO and RBD products are much lower compared to the previous export tax. This suggests that the government has lowered the export tax value in the latest revision to offset the recently introduced palm oil export levy effective from 16 July 2015. Following this change, the new export tax is expected to take effect concurrently with the export levy, when CPO price rises above US$750 per tonne.
However, when CPO falls below US$750 per tonne, only the palm oil export levy will apply. The fund collected from the export levy will be used to develop the palm oil industry and pay biodiesel subsidies under the newly formed CPO Supportive Fund programme. The export tax goes directly to the government. 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. However, there are some export tax savings, when the CPO price exceeds US$750 per tonne (see Figures 2 and 3).
What You Should Do
We are overall neutral on this news, as we feel that the impact on planters earnings is not significant at current CPO price levels. We are keeping our earnings forecasts and Neutral rating on the sector due to the unexciting near-term CPO price prospects. (Read Report)
Regional Plantations - Who’s Who in 2014
Tuesday, 28 July 2015
Tuesday, 28 July 2015
- Maybank Kim Eng Research
Source : CIMB Research