The Hindu Business Line : High edible oil taxes hit traffic in major ports

EDIBLE oil imports into the country are continuing unabated. In the last three financial years, imports averaged 42 lakh tonnes, while this year they are projected to expand to around 50 lakh tonnes. India is the world's largest importer of vegetable oil.

Edible oil imports are big business, in terms of both quantity and value.

These imports flow into the country through more than a dozen major and minor ports located on the east and west coasts.

A distinct change in volumes handled by different ports has become apparent in recent years.

While import volumes have expanded in some ports, some have faced a decline. The loss of traffic for some has been the gain of others.

Clearly, importers seem to be favouring certain ports over others and the reasons are not far to seek.

The volume of imports through any port depends principally on two factors - how user-friendly the port is and the taxation policy of the State in which the port is located.

A port-wise analysis of edible oil arrivals during last three years shows that Chennai and Mumbai are facing a gradual decline in traffic.

Importers are slowly moving away from these ports as they are unable to bear the high cost of port use and associated expenses.

Ports that have gained volumes in last three years include Kandla and Mundhra on the west coast and Kakinada on the east coast.

Not only do the two ports provide cost-effective service, but taxes in Gujarat and Andhra Pradesh are at a reasonable level that will not drive businesses away.

TN regime hurts Chennai port

Why is Chennai port losing edible oil import traffic? As per statistics compiled by Solvent Extractors' Association of India, during the oil year 2000-01 (November-October), the Chennai port handled 5.76 l.t. representing 12 per cent of total edible oil (48.33 l.t.) imported into the country.

This declined to 10 per cent the following year at 4.47 l.t., out of the country's aggregate import of 44.25 l.t.

A further decline in import volumes has been noticed this year. From November 2002 till June 2003, the Chennai port handled 2.61 l.t. of edible oil - 7.8 per cent of total imports of 33.45 l.t.

Those in the edible oil trade attribute this steady decline to the twin effect of high cost of port-use and high level of taxes in the State.

As edible oil business becomes increasingly competitive and with margins narrowing, importers seem to have no choice but to move to places that are business-friendly.

There is little doubt that the level of local taxes influences the decision of importers to favour one port over another. Tamil Nadu is known as the State with the least business-friendly taxation policy as far as edible oil trade is concerned.

While some businesses have moved out, many players with high exposure are constantly exploring ways and means to wriggle out of the complicated tax net.

First, there is the four per cent sales tax on the value of goods. On this, there is a surcharge of five per cent towards infrastructure tax, making sales tax 4.2 per cent.

Then there is the resale tax of one per cent on the value of goods.

Turnover tax is yet another fiscal impost - perhaps the most resented tax, and suspected to be largely evaded.

It is implemented on a graduated scale of turnover with the rate of tax rising as the turnover rises.

Turnover between Rs 10 crore and Rs 25 crore will attract one per cent tax; 1.5 per cent on turnover of between Rs 25-50 crore; two per cent on Rs 50-100 crore; and 2.5 per cent on Rs 100-300 crore. For turnover of Rs 300 crore and above, the tax rate is three per cent.

The cumulative burden of these varied taxes falls eventually on the consumer. Tamil Nadu is not self-sufficient in edible oils. It has to depend on imports from abroad and from other States. With import volumes through the Chennai port declining, the price situation can potentially get out of hand.

Traders, on the other hand, are wont to finding ways and means of evading the high level of fiscal imposts.

Front companies and shell companies are said to be mushrooming in the State as a result.

Some large importers are known to have floated a number of companies and firms so that the turnover figure is kept at the minimum level possible and lowest level of tax paid.

One company is widely believed to be operating in 30-40 names, merely to ensure that turnover tax is evaded.

Documents are reportedly prepared in dozens of names so as to disperse the turnover over a large number of assessees.

Declining import volumes are seen hurting a whole lot of service providers in the State including clearing agents, tank installation owners, transport operators and providers of allied services. Also, investment in creating infrastructure facilities in the State is becoming risky.

"Players operating from Tamil Nadu seem to have given up hope of enjoying a rational and trade-friendly tax regime in the State. It is time the policy-makers in the State woke up to the realities of the market and gave a thought to creating a climate conducive to attracting business, rather than drive it away," a prominent trader told Business Line.

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