Indonesia palm oil sector rattled by India tax

By Michael Taylor and Ratnajyoti Dutta

JAKARTA/NEW DELHI – Exports of palm oil from Indonesia, the world's biggest grower of the edible oil, are likely to drop after top consumer India effectively doubled import taxes on refined products, in a move that could also push rival Malaysia to overhaul taxes.

India, which imports more than half its annual vegetable oil consumption of about 16 million tonnes, on Thursday ended a six-year old freeze on the base import price of refined palm olein and kept the crude variety free of duty.

"The window of tax-free imports for crude palm oil has not been shut and this gives refiners ample scope to ensure domestic supplies," of refined products, said B.V. Mehta, director of industry body the Solvent Extractors' Association of India.

India's refined palm oil imports could fall by 50,000 to 70,000 tonnes a month, with crude filling the gap instead.

"Imports will favour crude palm oil after this change, but its impact will not be felt immediately as most of the contracts for next month have arrived," said a Mumbai-based trader.

Before Indonesia's duty hike, the refined grade formed about 17 percent of India's palm oil imports but its share has now risen to about 26 percent, at the expense of crude, which is mostly imported from Malaysia.

The move followed lobbying from Indian refiners after Indonesia slashed export duties for processed oil last October, as it looked to kickstart its domestic downstream industries.

New Delhi's policy response came after Indonesia's tax cut had made Indian refineries uncompetitive, said Fadhil Hasan, director of the Indonesian Palm Oil Association.

"India's response will be disadvantageous both for Indian consumers and Indonesian producers," Hasan said. "The same action will be done by Malaysia."

The Southeast Asian nation intends to reform its export duties on crude palm oil to support refiners hit by Indonesia's export tax structure, media reports have said.

India chose to remove a freeze of the base price on refined palmolein imports from $484 per tonne to align it with current global prices, the government said on Friday.

With market prices now around $1,050 per tonne, the unchanged 7.5 percent import duty will rise in dollar terms.

New Balance