Imaginary problem

In the section entitled ‘Object’ of the amendment one can read: ‘It is desirable to remove (palm oil’s) competitive advantage, which is based only on the fact that the cost of health and environmental damage it causes is outsourced and supported by the community.’

The justification for the proposed new tax relies on the idea of ‘palm oil’s competitive advantage’. We have seen, through basic economic analysis that this ‘competitive advantage’ is, at best, partial information and to a large extent a lie.

The economic analysis is clear: palm oil is currently taxed higher than all domestic vegetable oils, and substantially more than olive oil. To raise the palm oil tax further, in a discriminatory manner, would be grossly disproportionate.

More to the point, the Senators are trying to solve a problem that the economics proves does not exist. The problem exists only in their imagination. The proposed tax on palm oil is therefore an unnecessary and undesirable ‘solution’ to an imaginary problem.

The truth is that the proposed tax would immensely penalise palm oil producers and users, bringing the ad valorem tax on palm oil in the region of 200% (to be compared with a rate of 4.9% for olive oil).

In conclusion, from the point of view of economic analysis, there is no reason at all to recommend or support this tax.

[Note: The author’s report on this economic analysis, commissioned by the Malaysian Palm Oil Council, was completed in March 2016. The tax proposal was rejected in the National Assembly in June. Senators then confirmed the decision in July. This is an edited version of the report.]


 

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