The Hindu Business Line : Discrepancy in Centre's revenues from edible oil

THERE seems to be a serious discrepancy between the value of edible oil imports into the country and the corresponding revenues earned by the Centre on these.

According to the Finance Ministry, import of vegetable oils fetched the Centre Rs 3,069.94 crore in 2003-04. During the same financial year (April-March), the country imported 52.95 lakh tonnes of vegetable oils (edible), valued at Rs 11,674.41 crore, as per the Commerce Ministry's data. The effective duty on edible oil imports, by this reckoning, works out to hardly 26.3 per cent.

But given that the applied rates of duty on all grades of edible oil are much higher, ranging from 45 per cent to 75 per cent (even prior to the recent hike in duties on the entire palm oil complex), there appears to be something unreal about the effective duty computed from Finance Ministry's revenue figure.

To start with, take crude palm oil (CPO) and its fractions, the imports of which were placed at 28.48 lt, valued at Rs 5,739.95 crore during 2003-04. Till recently, CPO imports attracted 65 per cent duty, with even this being subjected to the consignments meeting a minimum 500 mg per kg total carotenoids requirement, failing which they were assessed at 75 per cent.

Even assuming 65 per cent duty and an average tariff value of $440 per tonne (on which customs duty liability is computed) during 2003-04, import of 28.48 lt of CPO alone would have earned the Centre revenues of Rs 3,743 crore.

Besides, the country imported 11.78 lt (Rs 2,678.47 crore) of refined palm oil and its fractions, which, at 75 per cent duty on an average tariff value of $480 per tonne for the year, would have fetched Rs 1,949 crore. In addition, import of crude soyabean oil amounted to 8.39 lt (Rs 2,195.09 crore) and other soya oil (mainly refined) another 1.54 lt (Rs 437.31 crore). At 45 per cent duty on average tariff value of $590 per tonne, crude soya oil imports alone would have yielded Rs 1,024 crore in customs revenue.

All taken together, then, the Centre's annual revenues from edible oil imports would be to the tune of Rs 7,000 crore, which is way above the estimate of Rs 3,069.94 crore provided by the Finance Ministry.

To put things in perspective, what the Centre earns from import of edible oils is more than the combined expenditure of all the departments under the Union Agriculture Ministry, which, for 2004-05, has been budgeted at Rs 5,303.73 crore (Rs 4,170 crore Plan and Rs 1,133.73 crore non-Plan). Within this, the total Plan allocation for oilseeds development, including the Technology Mission on Oilseeds & Pulses, comes to a paltry Rs 189 crore.

To look at it differently, for the Centre, edible oil imports have emerged as a revenue source, similar to what state governments earn from liquor (Rs 23,146.44 crore as per budget estimates for 2004-05). That this is a pretty recent phenomenon is also borne by the fact that the country spent just Rs 166.63 crore in importing 1.14 lt of edible oils in 1993-94. Since then, not only has the import bill climbed several-folds, but even import duties have been raised from 15-30 per cent to 70 per cent plus.

"The Centre today almost has a vested interest in import of edible oils, purely from its revenue considerations. Ideally, it should earmark at least a part of this for development of the sector, particularly to increase domestic oilseeds productivity," industry observers pointed out.

Industrial grade CPO being diverted for vanaspati?

ONE way to partially reconcile the discrepancy between the revenues officially accruing to the Centre from edible oil imports and what it actually would be earning as per recorded shipments is to discount for possible revenue leakages from concessional crude palm oil (CPO) imports by so-called soap manufacturers.

Currently, CPO of edible grade (with maximum free fatty acid or FFA of 5 per cent) is assessable at 80 per cent (65 per cent till recently), while CPO of industrial grade (with FFA of 20 per cent or more) imported for manufacture of soaps attracts a concessional 20 per cent duty.

While imports at 20 per cent is subjected to actual user condition — which means it can only be brought in for manufacture of soap, with the importers having to execute a bond with excise authorities, who would cancel the same after the finished product is cleared from the factory — there is a suspicion though that a large chunk of the imported CPO is being illegally diverted for making vanaspati.

The landed cost of CPO is now in the region of $375 per tonne or Rs 16.30 a kg. To this, if one adds 80 per cent duty on a tariff value of $400 per tonne (Rs 13.92 a kg), handling and other costs at port (Rs 2 a kg) and transport from the port to a vanaspati unit in the North (Rs 2 a kg), the total cost of CPO at processing point would be about 34.23 a kg.

If one provides for packaging and labelling in a 15 kg tin (costing Rs 50), processing charges (Rs 60 per tin), excise duty (Rs 1.25 per kg) and sales tax (4 per cent), the cost of producing a tin of vanaspati would currently work out to about Rs 670. But there are many local brands, such as `Rishi,' `Jindal' and `Diamond' here that are selling for Rs 580-600 a tin, as against Rs 680-700 in the case of established brands like `Rath' and `Panghat.'

According to industry sources, there is a lot of industrial grade CPO that is coming into the country, ostensible for manufacturing soap, but actually going into making of vanaspati. Processing this oil costs double that of edible grade CPO, as the FFA would have to be brought down to 0.25 per cent from over 20 per cent. But this is more than offset by the substantial savings in duty payable.

However, the extent of such illegal diversion is reported to be not more than two lakh tonnes, which still leaves a large part of the discrepancy in customs revenue estimates from imported edible oil unexplained.

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