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

Abstract

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 competitiveness to decrease.