KUALA LUMPUR: Malaysia will keep its crude palm oil (CPO) exports in March tax-free, a surprising move after the government announced earlier that the tax regime for CPO would resume in March after its suspension since Sept 14 last year.

According to the Royal Customs Department order published on the Malaysian Palm Oil Board (MPOB) today, the price of CPO for March is set at RM2,232.88, which is lower than the threshold RM2,250 which triggers the tax structure.

Last Thursday, Plantation Industries and Commodities Minister Datuk Seri Douglas Uggah Embas said export duties on CPO would resume next month after it was suspended from Sept 14, 2014 to stem further depreciation of CPO prices amid rising inventories.

CPO prices had fallen below the threshold of RM2,250 per tonne, the price at which Malaysia's staggered range of export duties would kick in at 4.5%.

The suspension of export duties, coupled with the forecast of seasonally lower output at end-2014, had brought relief to the industry which was bogged down with low CPO prices since mid-2014, with the price hitting a five-year low of RM1,914 per tonne on Sept 2, 2014.

CPO is currently trading at RM2,280 per tonne on the back of low stocks and production.

When contacted, Public Investment Bank Bhd analyst Chong Hoe Leong said that the move caught him and other analysts by surprise.

“We expected a 4.5% rate of export duties on CPO in March because the average price, which is calculated between Jan 10 and February 9, is above RM2,250,” he told The Edge Financial Daily.

“But their (authorities) calculations are below (the threshold). So I’m not sure how it works,” he added.

However, Chong said the move is good for the market, as it would flush out inventories.

“It is likely that inventories in February will be lower. We are still in the low cycle period,” he said, referring to the low production season at the year-end of each year extending into the first few months of the new year.

Chong noted that the extension of the zero-rate on export duties was probably the reason for CPO prices rebounding yesterday to about RM2,312.

An analyst said CPO prices were already more stable, and thus, the tax structure should be adhered to.

“I think the government should stick to what it had laid out so that no one is caught by surprise,” he said.

However, the analyst, who declined to be named, said the tax rate is largely negligible as the 4.5% rate is low. “It is minor noise, really,” he added.