Incentives sought for biodiesel producers

Ika Krismantari ,  The Jakarta Post ,  Jakarta   |  Thu, 02/28/2008 11:32 AM  |  Business

A committee has asked the government for a tax cut for biodiesel producers to help encourage the eco-friendly fuel business amid high prices of palm oil.

Evita H. Legowo, the first secretary of the National Biofuel Development Committee, told The Jakarta Post on Wednesday the proposed tax cut was in the form of a reduction in the value-added tax (VAT).

According to Bloomberg, the price of palm oil, the main ingredient in making biodiesel, has almost doubled in the past 12 months and risen to as much as 3,914 ringgit (US$1,217) a ton. On Tuesday, crude palm oil (CPO) traded at 3,820 ringgit in the morning in palm oil futures in Malaysia.

Evita said the tax cut was necessary for the biodiesel producers to keep their businesses viable despite the surging price of its raw commodity.

She added that the proposed tax cut adopted the same mechanism applied in the newly introduced palm oil export tax, which had been set progressively in line with the CPO price traded in the Rotterdam commodity market.

Under the policy, introduced early February, the government sets a 15 percent export tax if CPO is priced between US$1,100 and $1,200 per ton.

The tariff increases to 20 percent if the price is $1,200 to $1,300 and 30 percent if the price exceeds $1,300 per ton.

Evita did not say when the tax break would be introduced as it was still under discussion with relevant ministries, but did say it could be applied before the introduction of a much-awaited government regulation on the mandatory use of biofuel.

"It's because we see the tax cut policy will be easier to be implemented than the mandatory regulation."

The plan for mandatory use by industries, which was also proposed by the committee, aims to constitute 2 to 2.5 percent of the nation's total fuel consumption, or about 1.2 million to 1.5 million kiloliters per year.

Evita hoped the implementation of the two policies would make the biodiesel industry attractive and draw more investment.

The industry, represented by the Indonesian Biofuel Producers Association (APROBI), has long asked for incentives to protect its business amid increasing production costs.

Due to a lack of support and unclear regulations from the government, it said, the nation's biofuel businesses dropped by 85 percent last year, with many other producers postponing their investment plans.

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