Alternative Export Levy Policy Not Burdenning Smallholder Farmers
Export levy is one of an instrument of the export tax policies other than export duty which is imposed for every tonnes of export of palm oil and its derivative products. The purpose of implementing export taxes, both duty and levy are to the development of domestic downstream, as well as to maintain stock and price stability. Although both are export tax instruments, there is a fundamental difference. Export duty becomes state revenue, while levy is used as a source of funding the development of the national palm oil industry.
Referring to Law No. 39/2014 concerning Plantations, Article 93 revealed that one of the funding sources for plantation development from levy from the actors. This law has been followed up by the issuance of Government Regulations, Presidential Regulations and Minister of Finance Regulations related to the collection and use of palm oil levy as a source of funding for the development of the national palm oil industry related to the replanting of smallholder plantations, development of plantation infrastructure, human resource (farmers) development, research inovation, promotion (positive campaign) and development palm oil-based biofuels.
To do these tasks and functions, the Oil Palm Plantation Fund Management Agency (BPDPKS) was formed as a Public Service Agency (BLU) at the Ministry of Finance of the Republic of Indonesia.
The implementation of export levy for CPO for the first time was carried out in 2015 based on PMK 114/2015, with a tariff of USD 50 per ton at each level of global CPO’s price. The amount of export levy for CPO has continues to change. In this year, the Indonesian Government through the Ministry of Finance has issued two regulations regarding the ammount of export levy tarriff stipulated in PMK 57/2020. And then the government has re-adjusted the tarriff as stipulated in PMK 191/2020.
The background of the adjustment of the palm oil export levy in PMK 191/2020 are the trend of increasing CPO prices and the sustainability of programs in development national palm oil industry. Especially during the pandemic, the gap between the fossil diesel’s prices and FAME’s prices continues to widen, which has an impact on the greater of biodiesel incentive that must be provided by BPDPKS, on the other hand the Indonesian Government continues to be fully committed to achieving the renewable energy mix through the B30 program.
Not only that, other palm oil industry development programs such as replanting of smallholder farmers plantation (PSR), research innovation, development of smallholder human resources, and implementation of palm oil campaigns, promotions and advocacy both in domestic and international, also require sustainable supporting funding that comes from export levy.
In economic theory, which has also been proven by empirical studies, the implementation of export levy (export taxes) will lead to a welfare trade-off between actors which is the producer’s welfare surplus decreases and the consumer’s welfare surplus increases, but the total nett welfare will decrease. This was also confirmed by the PASPI team’s analysis, the latest CPO’s export levy (PMK 191/2020) had an impact on causing losses for FFB producers and CPO producers, including smallholder farmers.
On the other hand, the integrator of oil palm plantation company – CPO/RPO (mill) – the downstream industry, as well as the downstream industry players actually enjoy the benefits (gain). However, in total it can be ascertained that the losses suffered by the FFB and CPO producers is greater than the profits enjoyed by the integrator industry and the downstream industry.
Even the potential losses borne by smallholder farmers (especially independent) could be greater depending on the bargaining power that they have to deal with local mill. The potential losses received by smallholder farmers due to the implementation of these policies should be getting more attention from the Indonesian Government. Therefore, reformulation of export levy policies is needed to create win-win conditions or doesn’t cause conomic losses that can be borne by smallholder farmers, plantation companies, refenery industry or downstream industries.
The losses suffered by CPO and FFB producers as stated above occur because the method of applying indirect export levy, which is based on the volume or value of palm oil products. This indirect levy will change the market equilibrium, so that the burden of levy is transmitted (pass-through) to upstream players (CPO and FFB producers), especially smallholders. In addition, the indirect levy also create inefficiencies in palm oil industry.
Therefore, there needs a change from the indirect levy to a direct levy based on the area of the plantation which has a fixed value every year, for the example is instrument of Land and Building Tax. The fixed levy can be treated as fixed costs, so dont change the market equilibrium and domestic price mechanism.
This policy recommendation has also accommodated in the Explanation of article 5 of Government Regulation No. 24/2015, which allows levy on exports of strategic commodities (include palm oil) to be a deductible part of the calculation of income tax. It’s expected, that the direct levy will not create win-lose conditions and inefficiencies, as happened in the implementation of the indirect levy.
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