Irrational duty structure

Every time the government meddles with the customs and excise duty structure for edible oils, it messes up further. And such meddling is not infrequent. As a result, this sector has to cope with a complex and, in many ways, absurd duty structure.

Adding to this confusion are tariff values (the base prices for calculating duties), which are revised frequently on the plea of preventing under-invoicing.

Besides, there are complex quality norms for determining duty, requiring sophisticated laboratory tests at the importing ports to distinguish between crude and refined products.

In certain cases, the differential between the duty slabs is completely illogical "" as for various forms of palm oil, which constitute the largest segment of vegetable oil imports and which are the main ingredient in vanaspati production.

The import duty on crude palm oil is as high as 65 per cent while that on the finished product "" vanaspati, or hydrogenated oil "" is just 30 per cent. Again, the differential between the crude and other palm oils and the refined palm oil is merely 5 per cent.

What is even more irksome from the industry's point of view is the stipulation that only that oil which has a minimum 500 mg/kg of carotenoid (beta carotene or vitamin A) content and 2 per cent free fatty acids would be treated as crude palm oil.

Beta carotene is known to be a highly unstable substance that disintegrates rapidly due to oxidation. Thus, even the consignments that have the required minimum carotenoid at the time of ship loading are liable to be rejected on landing due to decline in this content in transition.

This apart, the laboratory facilities required to estimate the carotenoid content are either not there or prone to error. As a result, this specification leads to unnecessary harassment of importers and breeds corruption.

The domestic oils sector, notably the vanaspati industry, has also to contend with imports from neighbouring countries under preferential trade agreements.

Though Nepal, Sri Lanka and Bangladesh do not have much indigenous vegetable oil to export, they do have channels to import it from elsewhere at zero duty and re-export it to India as is, or after converting it to vanaspati to take advantage of the low Indian import duties for their products.

The government needs to review all duties for the sector and introduce some simplicity and rationality in the duty structure. Such a step is urgent because the country is perpetually deficit in edible oils and imports are unavoidable.

Besides, owing to the growing gap between indigenous supply and demand, the domestic prices of cooking oil are no longer influenced by local production but follow international trends. In such a situation, smooth international trading should be a key objective.