Agri Business

Higher tariff value on edible oils to lower benefit of cut in import levies

Shishir Sinha New Delhi | Updated on October 18, 2021

SEA wants import of refined palm oil or palmolien banned   -  istock/slpu9945

Actual reduction in retail prices to be lower than expected, say experts

After lowering import levies, the Finance Ministry has upped the tariff value for edible oils. This means the benefit of lowering duty for retail prices will be less than expected.

Immediately after import duty reduction, the retail prices of refined oil were expected to come down by ₹6-8 a kg, but it could be less now.

Tariff values refer to the base on which ad valorem (percentage of value) duty is calculated for an imported good. Change or no change in the value is notified every fortnight keeping in mind the prices in the international market. Sub section (2) of Section 14 of the Customs Act 1962 empowers the Central Board of Indirect Taxes & Customs (CBIC) “to fix tariff values for any class of imported goods or export goods and the duty shall be chargeable with reference to such tariff value.”

On the one hand, after keeping values unchanged for a month, on October 14, the board notified hike in tariff value in the range of $60-74 per tonne for crude palm oil, RBD (refined, bleached and deodorised) palm oil, other palm oil, crude palmolein, RBD palmolein, others – palmolein and crude soyabean oil. On the other hand, from the very same day, the board effected import levies reduction between 16.5 per cent and 19.25 per cent on crude and refined palm oil, soyabean oil and sunflower oil.

Third reduction

This is the third reduction in recent months and the immediate trigger for the latest cut was largely on account of the high price of edible oil and the onset of festive season and high food inflation.

Anil K Sood, Professor and Co-founder with Institute of Advanced Studies in Complex Choices, said that one of the reasons for changing the tariff value is to align it to changes in market prices of the underlying commodity. During recent months, there has been a general upward trend in commodity prices. For example, the price of locally delivered crude palm oil in Malaysia has increased by about 18 per cent from July to October. The World Bank index too shows an increase in the Malaysian palm oil prices.

The Malaysian export prices for processed palm oil in the last three months have hardly seen any change. It is possible that the recent increase in market prices will reflect in export prices a few months later, depending on the nature of contracts that have been signed.

According to Sood, on the other hand, the soyabean oil prices have come down during the last few months. It is, therefore, a bit surprising to see the tariff value rise.

“Any increase in tariff value would naturally add to the duty incidence and will reduce the benefit available from reduction in duty, though it will protect the government revenue,” he said.

Producers’ body feels reducing the import levies and raising the tariff value are giving confusing signals.

“Edible oil industry is a high-volume low-margin one. Also, we import nearly 65 per cent of our requirement. To give maximum benefit of duty reduction, the Finance Ministry should have continued to keep tariff value unchanged for some more time,” said BV Mehta, Executive Director of Solvent Extractors’ Association.

 

Published on October 17, 2021

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