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 Mahamad Rodzi Abdul Ghani
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 Discrepancy in Centre's revenues from edible oil

2/23/05 INDIA - THERE seems to be a serious discrepancy between the valueof edible oil imports into the country and the corresponding revenuesearned by the Centre on these.

According to the Finance Ministry, import of vegetable oils fetched theCentre Rs 3,069.94 crore in 2003-04. During the same financial year(April-March), the country imported 52.95 lakh tonnes of vegetable oils(edible), valued at Rs 11,674.41 crore, as per the Commerce Ministry'sdata. The effective duty on edible oil imports, by this reckoning, worksout to hardly 26.3 per cent.

But given that the applied rates of duty on all grades of edible oil aremuch higher, ranging from 45 per cent to 75 per cent (even prior to therecent hike in duties on the entire palm oil complex), there appears to besomething unreal about the effective duty computed from Finance Ministry'srevenue figure.

To start with, take crude palm oil (CPO) and its fractions, the imports ofwhich were placed at 28.48 lt, valued at Rs 5,739.95 crore during 2003-04.Till recently, CPO imports attracted 65 per cent duty, with even thisbeing subjected to the consignments meeting a minimum 500 mg per kg totalcarotenoids requirement, failing which they were assessed at 75 per cent.

Even assuming 65 per cent duty and an average tariff value of $440 pertonne (on which customs duty liability is computed) during 2003-04, importof 28.48 lt of CPO alone would have earned the Centre revenues of Rs 3,743crore.

Besides, the country imported 11.78 lt (Rs 2,678.47 crore) of refined palmoil and its fractions, which, at 75 per cent duty on an average tariffvalue of $480 per tonne for the year, would have fetched Rs 1,949 crore.In addition, import of crude soyabean oil amounted to 8.39 lt (Rs 2,195.09crore) and other soya oil (mainly refined) another 1.54 lt (Rs 437.31crore). At 45 per cent duty on average tariff value of $590 per tonne,crude soya oil imports alone would have yielded Rs 1,024 crore in customsrevenue.

All taken together, then, the Centre's annual revenues from edible oilimports would be to the tune of Rs 7,000 crore, which is way above theestimate of Rs 3,069.94 crore provided by the Finance Ministry.

To put things in perspective, what the Centre earns from import of edibleoils is more than the combined expenditure of all the departments underthe Union Agriculture Ministry, which, for 2004-05, has been budgeted atRs 5,303.73 crore (Rs 4,170 crore Plan and Rs 1,133.73 crore non-Plan).Within this, the total Plan allocation for oilseeds development, includingthe Technology Mission on Oilseeds & Pulses, comes to a paltry Rs 189crore.

To look at it differently, for the Centre, edible oil imports have emergedas a revenue source, similar to what state governments earn from liquor(Rs 23,146.44 crore as per budget estimates for 2004-05). That this is apretty recent phenomenon is also borne by the fact that the country spentjust Rs 166.63 crore in importing 1.14 lt of edible oils in 1993-94. Sincethen, not only has the import bill climbed several-folds, but even importduties have been raised from 15-30 per cent to 70 per cent plus.

"The Centre today almost has a vested interest in import of edible oils,purely from its revenue considerations. Ideally, it should earmark atleast a part of this for development of the sector, particularly toincrease domestic oilseeds productivity," industry observers pointed out.

Industrial grade CPO being diverted for vanaspati?

ONE way to partially reconcile the discrepancy between the revenuesofficially accruing to the Centre from edible oil imports and what itactually would be earning as per recorded shipments is to discount forpossible revenue leakages from concessional crude palm oil (CPO) importsby so-called soap manufacturers.

Currently, CPO of edible grade (with maximum free fatty acid or FFA of 5per cent) is assessable at 80 per cent (65 per cent till recently), whileCPO of industrial grade (with FFA of 20 per cent or more) imported formanufacture of soaps attracts a concessional 20 per cent duty.

While imports at 20 per cent is subjected to actual user condition - whichmeans it can only be brought in for manufacture of soap, with theimporters having to execute a bond with excise authorities, who wouldcancel the same after the finished product is cleared from the factory -there is a suspicion though that a large chunk of the imported CPO isbeing illegally diverted for making vanaspati.

The landed cost of CPO is now in the region of $375 per tonne or Rs 16.30a kg. To this, if one adds 80 per cent duty on a tariff value of $400 pertonne (Rs 13.92 a kg), handling and other costs at port (Rs 2 a kg) andtransport from the port to a vanaspati unit in the North (Rs 2 a kg), thetotal cost of CPO at processing point would be about 34.23 a kg.

If one provides for packaging and labelling in a 15 kg tin (costing Rs50), processing charges (Rs 60 per tin), excise duty (Rs 1.25 per kg) andsales tax (4 per cent), the cost of producing a tin of vanaspati wouldcurrently work out to about Rs 670. But there are many local brands, suchas `Rishi,' `Jindal' and `Diamond' here that are selling for Rs 580-600 atin, as against Rs 680-700 in the case of established brands like `Rath'and `Panghat.'

According to industry sources, there is a lot of industrial grade CPO thatis coming into the country, ostensible for manufacturing soap, butactually going into making of vanaspati. Processing this oil costs doublethat of edible grade CPO, as the FFA would have to be brought down to 0.25per cent from over 20 per cent. But this is more than offset by thesubstantial savings in duty payable.

However, the extent of such illegal diversion is reported to be not morethan two lakh tonnes, which still leaves a large part of the discrepancyin customs revenue estimates from imported edible oil unexplained.

Malaysian Palm Oil Board ( MPOB ) Lot 6, SS6, Jalan Perbandaran, 47301 Kelana Jaya, Selangor Darul Ehsan, MALAYSIA.
Tel : 603 - 7802 2800 || Fax : 603 - 7803 3533