The Hindu Business Line : Tariff value on edible oil: A tool to fight inflation

Spiralling global edible oil prices in the recent period have made a mockery of tariff values fixed by the Finance Ministry. Instead of being used to check under-invoicing by importers (the original stated purpose), tariff values have now become an instrument for fighting inflation.

The accompanying table shows that till around June, tariff values for crude palm oil (CPO), RBD (refined, bleached, deodorised) palmolein and crude de-gummed soyabean oil generally ruled higher than their corresponding landed (cost, insurance, freight) price at Mumbai.

This was understandable, as the idea behind fixing tariff values was to curb under-invoicing by importers in order to escape paying the high customs duties levied on edible oil. The tariff value was meant to reflect the `true' prevailing international price and not the understated price declared by the importer.

Change in tide

But since July, as international prices have soared, the tide has changed. On Friday, the landed cost of CPO, at $501 per tonne, was way above its tariff value of $447 per tonne on which the 78.2 per cent overall import duty is levied. The current tariff values of RBD palmolein and soya oil are similarly much lower than the actual cost of import.

Effectively then, importers are today paying a duty of 69.8 per cent on CPO (against the official 78.2 per cent), with these being 81.9 per cent (88.8 per cent) for RBD palmolein and 44.6 per cent (50.8 per cent) for soya oil. In the past, whenever global prices hardened, the Government's response was to bring down import duties.

In fact, it did cut duties on CPO and RBD palmolein by 10 per cent on August 11. However, since further reductions may not have been politically palatable, the Finance Ministry has chosen the more expedient route of keeping tariff values unchanged despite soaring international prices.

The tariff values of CPO and RBD palmolein have remained constant since July 31, while not being altered for soya oil from September 15.

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