PALMOILMAGAZINE, JAKARTA – The 20th Indonesian Palm Oil Conference (IPOC) being held for three days in Bali starting Wednesday (Nov 6, 2020) will be overshadowed by the revelation on October 23 by Hashim Djojohadikusumo, younger brother of President Prabowo Subianto, that the government had found some 300 palm oil companies operating illegally.
“We could soon collect around Rp 300 trillion in tax arrears and fines from these problem plantation companies, and this has been reported to President Prabowo,” Hashim, Chairman of the Advisory Board at the Indonesian Chamber of Commerce and Industry (Kadin), told a business conference.
This additional revenue is certainly good news for the new government which will have to allocate nearly 44 percent of next year’s estimated total revenue to interest and debt amortization.
Also Read: Palm Oil Sector Drives Economic Growth in Indonesia’s Rural Areas
However, more detailed information is still needed on how long the illegal companies have been operating, and how 25 companies do not even have taxpayer identification numbers (NPWP) and 15 others do not have accounts with Indonesian banks. Without further clarification, Hashim’s statement could raise many questions about the effectiveness of government oversight of the industry. How can these companies carry out domestic and export transactions without an NPWP or even a local bank account?
As if Hashim’s statement was not shocking enough, Agrarian and Spatial Planning Minister/Head of the National Land Agency Nusron Wahid revealed to the House of Representatives on October 30 that the government also found 2.5 million hectares of oil palm plantations managed by 537 oil palm companies that have plantation business licenses but no Cultivation Rights Title (HGU).
Wahid did not specify the location of the companies or the reason for the irregularities, but stated that the illegal palm oil companies were discovered between 2016 and October 2024. The nagging question is, how could the local government be unaware of the existence of these illegal plantation companies?
“BPKP (Financial and Development Supervisory Agency) is currently calculating how much tax fines should be imposed on these companies. But keep in mind that even if these companies pay their tax fines, they will not be entitled to HGU,” added Nusron, a Golkar politician.
Also Read: Minister Nusron Wahid Targets Improved Business Rights System for Palm Oil Sector in First 100 Days
The Bali conference should be an opportunity for government officials and members of the Indonesian Association of Palm Oil Producers (Gapki) to clarify the controversial statement, so that the reputation of the industry, which plays a crucial role in the economy, does not continue to be tarnished and questioned internationally in terms of its sustainability commitment.
Allowing this kind of negative information to circulate could reinforce poor perceptions of public sector and corporate governance in Indonesia, especially in the lucrative palm oil industry. Worse still, initiatives to achieve 8 percent annual economic growth and efforts to achieve food security and energy independence could be hampered.
As the world’s largest producer, with 16.8 million hectares of oil palm plantations involving around 4 million smallholders, Indonesia is in a strong position to lead the industry and shape the global market. The country is also rich in land suitable for oil palm plantations and can still increase its palm oil production.
The current situation reminds us of the cooking oil crisis in 2022, when prices spiked sharply. At that time, Coordinating Minister for Maritime Affairs and Investment Luhut Pandjaitan formed a special task force to improve palm oil governance and increase state revenue by conducting a thorough audit of palm oil plantations.
In 2023, Luhut revealed that the audit found around 3.1 million hectares of oil palm plantations located in forest areas. However, he stated that these oil palm plantations would not be closed down, but rather legalized and included in the tax system and supervised by relevant ministries. Tax and administrative penalties are still being calculated by the BPKP.
It is unclear whether the IDR 300 trillion in additional revenue mentioned by Hashim is related to Luhut’s audit results and Nusron’s statement regarding the 537 palm oil companies that do not have HGUs.
Until now, the palm oil industry has experienced business uncertainty due to a series of strict anti-market policies, such as export quotas and domestic market obligations introduced in early 2022 to stabilize cooking oil prices at government-set levels.
Palm oil has and will continue to play an important role in the economy, as it provides employment for more than 17 million workers and involves around 4 million smallholders. However, the government needs to urgently reform the governance of this industry. There is no other way to maintain palm oil’s benefits to the economy than by improving the regulatory and governance framework, reducing red tape, and strengthening policy certainty and predictability.
With the palm oil industry’s complex structure, long-standing problems and important economic role for the country, it is imperative for the government to find solutions to the industry’s recurring problems.
President Prabowo himself frequently stated during this year’s presidential campaign that he would develop palm oil not only as a major source of cooking oil and other consumer products, but also biodiesel to support Indonesia’s transition to renewable energy.
The Bali conference should be utilized as an effective consultation forum to improve the capacity of government institutions and the regulatory framework for the industry to provide a coherent support system.
Other improvements that should be prioritized in the palm oil industry include establishing inter-agency coordination and information centers to address policy complexities and creating cross-sectoral forums to develop roadmaps and strategic plans for the development of the palm oil industry. (*)
By: Edi Suhardi and Agam Fatchurrochman / Sustainability Analysts
Disclaimer: Articles are personal opinions, and are the sole responsibility of the author.
