Kerala VAT withdrawal to boost copra, coconut oil

The Kerala government decision to withdraw VAT on coconut oil, copra and copra cake has given a big boost to the copra crushing and coconut oil trading sectors, according to Kochi-based traders.

Coupled with Onam festival demand and withdrawal of VAT, coconut oil and copra prices have ballooned recently and oil has quoted around Rs 5,100 per quintal, up by Rs 200 recorded a fortnight ago.

The finance minister has acceded to the demand of coconut oil and copra trading community by withdrawing VAT for oil and copra cake with retrospective effect from May 1, 2007, and for copra effective from June 1.

Thomas Issac, minister for finance, told Business Standard that since all these commodities were included in the zero per cent tax list, these would not attract CST also.

This will benefit the trading and producing sectors of coconut oil and copra, he added. According to M J Kuriakose, President , Cochin Oil Merchants Association (COMA), the government decision would be a boon to the trading and milling sectors which were reeling under crisis for the past one decade.

He said that 80 per cent of the state's 800 copra crushing units had been closed down due to various reasons like labour problems, high cost of production and lack of demand. The high tax rate also led to closure of many units.

In the changed tax scenario, a large number of units are gearing up for re-opening. According to Kuriakose, around 100 units would restart within next 2-3 months. Coconut Development Board (CDB) has also come up with encouraging schemes such as 25 per cent subsidy for milling units and marketing assistance to the tune of Rs 10 lakh. A quality testing laboratory of CDB, with modern facilities will be operational at Vazhakkulam, near Kochi soon, putting an end to the serious problem of testing coconut oil.

As Tamil Nadu had withdrawn VAT earlier, coconut oil and copra business of South India has been shifting to Tamil Nadu and Kerala is being supplied with oil and copra at much cheaper rates from neighbouring states.

But now Kerala is on a par with Tamil Nadu on the tax front and this will naturally benefit the state although there is high degree of disparity in the pricing of both the products between these two states. Currently, oil is being quoted at Rs 4,500 per quintal in Tamil Nadu while Kerala is having a tag of Rs 5,100.

Coconut oil from Tamil Nadu is being supplied to Kerala in order to meet the festival demand as production in Kerala is fairly low due to heavy monsoon and spread of epidemics like chikungunya.

According to traders, the increase in prices would be a temporary one and this would last till the end of Onam festival season.

As Tamil Nadu is quoting much lower rates and production season is in full swing there, it is rather un likely to have a northward movement of price line. Seasonal production has also been started in Karnataka and will be in full swing within 2-3 weeks time.

So the trading community does not foresee a serious shortage for coconut oil and copra and a steep rise in the price tags. Supply to Kochi market has also increased recently and 50 tonne of coconut oil is being offered for sale on a daily basis, said a leading retail trader.

So market sources expect a slow down in the prices of coconut oil and copra after the Onam season.