Malaysia is considering a temporary waiver of its crude palm oil export tax to accelerate shipments, reduce elevated inventories and narrow the price gap with Indonesian palm oil in key international markets.
PALMOILMAGAZINE, KUALA LUMPUR — Malaysia is considering temporarily scrapping its export tax on crude palm oil (CPO) as the country seeks to tackle soaring palm oil inventories and strengthen the competitiveness of Malaysian supplies against cheaper Indonesian products.
The proposal comes after Malaysia’s palm oil stocks climbed to a record 3.5 million tons in September 2026, increasing pressure on exporters as Indonesian palm oil continues to trade at a significant discount to Malaysian supplies.
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According to Business Times, Malaysia’s Plantation and Commodities Ministry is expected to discuss the proposed tax waiver with industry stakeholders.
Malaysia currently imposes a 10% export tax on CPO, equivalent to about RM450 per ton at prevailing prices. Indonesian palm oil, meanwhile, is trading around RM700–RM900 per ton below Malaysian products, leaving Malaysian exporters at a significant competitive disadvantage.
Dr. Harald Sippel, executive director of ESG Malaysia, said a temporary suspension of the export tax could help accelerate shipments and reduce inventories, particularly in price-sensitive markets such as India.
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However, Sippel said removing the tax alone would not fully eliminate Malaysia’s price disadvantage against Indonesia.
If the entire tax saving were passed on to buyers, the measure would cover only about half to two-thirds of the existing price gap, he said.
Sippel also cautioned that Indonesia could respond by adjusting its own export levies as market conditions change, potentially eroding Malaysia’s competitive advantage.
Export Tax Waiver Could Reduce Government Revenue
Sippel estimates that every one million tons of CPO exported without the tax would reduce Malaysian government revenue by approximately RM450 million based on current prices.
Some of the revenue loss could potentially be offset through higher corporate tax receipts and windfall levies if stronger sales and improved producer prices boost company earnings.
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Nevertheless, Sippel recommended that any tax suspension should be time-limited and include clear conditions for its termination.
Plantation companies could benefit from higher CPO prices, while smallholders may receive better fresh fruit bunch (FFB) prices if mills pass higher palm oil prices through the supply chain.
The downstream processing industry, however, could face higher feedstock costs as CPO prices strengthen.
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Chong Hoe Leong, an analyst at Public Investment Bank, said eliminating the export tax could help Malaysia regain market share from Indonesia.
He proposed maintaining the policy until domestic palm oil inventories fall below 2 million tons.
Productivity and Traceability Remain Long-Term Challenges
Sippel stressed that Malaysia’s long-term competitiveness cannot depend solely on tax policy.
Higher plantation productivity, replanting, labor efficiency and stronger supply-chain traceability will remain critical to maintaining Malaysia’s position in the global palm oil market.
Under the European Union Deforestation Regulation (EUDR), palm oil entering the European Union must be traceable to the plot of land where it was produced and supported by evidence that the product was not linked to deforestation occurring after December 2020.
Malaysia cannot assume it has an automatic advantage over Indonesia on sustainability grounds, as both countries are classified as standard risk under the European Union’s country risk assessment framework.
Smallholders also face the same traceability requirements but generally have more limited financial and technical resources to comply.
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Sippel suggested that part of the government revenue potentially forgone through an export tax waiver could instead be directed toward smallholder plantation mapping and strengthening traceability systems.
Malaysia previously suspended its CPO export tax for six months in 2020.
The effectiveness of any new tax waiver will ultimately depend on whether it can accelerate exports, improve producer prices and reduce inventories while preserving fiscal sustainability and strengthening the competitiveness of Malaysia’s palm oil industry. (P2)
