The effects of export taxation in the rubber industry in West Malaysia
Date
1976
Authors
Chan, Paul Tuck-Hoong
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Abstract
The rubber export tax system in West Malaysia consists of
the following elements:
1) the Schedule I export tax, which varies with the
price level of RSS 1 rubber
2) the Schedule III research cess, which is a fixed
amount of 1 cent per pound of rubber exported
3) the Schedule IV replanting cess, which is a constant
amount of cents per pound of rubber exported.
The explicit objectives of the Schedule I export tax are to
raise revenue for the Government and to act as a countercyclical tool
during periods of price fluctuations. The other two cesses are earmarked
taxes. The research cess is collected for the purpose of funding
research in the rubber industry. The replanting cess is collected for
the purpose of subsidizing replanting amongst the rubber producers. To
accomplish this a replanting grant is given to the rubber producers.
The problem to be investigated in this thesis centres on the
relationship between the imposition of the export taxes and the
provision of the replanting grant on the one hand and rubber investment
and production on the other. Owing to differences in the administration
of the export taxes, particularly the replanting cess, for the estate
and smallholding sectors and because of their different economic
background, the effects on the two groups of producers are quite
different. The details of the above issues are explained in Chapter 1,
which outlines the objectives and methodology of the thesis. It also
explains the manner in which detailed new data on the rubber production and marketing system and on the decision making of estates and smallholdings
was collected by an extensive sample survey during 9 months fieldwork
in West Malaysia. These new data form the basis for a large part of the
analysis in the thesis.
In Chapter 2, the development of the rubber industry and its
role in the Malaysian economy are discussed. Differences in the
organizational structure and resource use between smallholdings and
estates are highlighted.
In Chapter the major theoretical conclusions on export
taxes in international trade and public finance studies are reviewed.
The development of the rubber export taxation system is then traced.
An attempt is also made to reinterpret the Nurkse effect of the use of
export taxes.
Chapter 4 examines the process of price formation in the
rubber sector. The major variables affecting the prices received by
smallholders and estates are examined by a simple model. In this Chapter,
there is also an attempt to estimate the effect of a change in the
rubber export taxes on the domestic prices received by the rubber
producers. Chapter 5 discusses the concept and measurement of progressivity
of the rubber export taxes. It also analyses the burden of the taxes
and its impact on the profitability of rubber production.
A simple Nerlovian supply response model is constructed for
smallholdings and estates in Chapter 6. The aim is to establish
evidence on the influence of the export taxes and replanting grant on
short run production and long run investment in the rubber industry.
In Chapter 7, survey data and information are used to verify
the conclusions of Chapter 6. The decision making process and the variables considered significant by rubber producers in their production
and investment policy are analyzed.
The long term planning decision in replanting a stand of
rubber trees is examined in Chapter 8, The Farris model is applied and
the effect of the replanting grant on optimal replacement ages is
analyzed.
In Chapter 9, the problems involved in restructuring the
rubber export tax system are explained. A few hypothetical cases are
used to illustrate the issue. It also provides a summary of the main
conclusions of this study.
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