Agriculture Tax Increase On Crude Palm Oil Imports Could Reduce Shipments

Government has imposed an additional tax on crude palm oil imports as the world's biggest importer of vegetable oils tries to build domestic agriculture infrastructure by taxing imports, Finance Minister Nirmala Sitharaman said on Monday.

Government cut the basic import tax on crude palm oil to 15 per cent from 27.5 per cent, but imposed a 17.5 per cent "cess" - a separate tax - on the imports, Ms Sitharaman said in her budget speech.

The cess would provide resources for "an immediate need to improve agricultural infrastructure," Ms Sitharaman said.

The tax increase will narrow the duty gap between palm oil and other edible oils, which could reduce India's palm oil imports and potentially put pressure on Malaysian palm oil prices.

After the changes, crude palm oil imports would effectively attract 35.75 per cent tax against 30.25 per cent previously, B.V Mehta, executive director of the Solvent Extractors' Association, a Mumbai-based trade body, said.

"With the today's duty hike, palm has lost the big undue advantage it had over soyoil and sunflower oil. It will help in containing palm oil imports," Mr Mehta said

India also imposed 20 per cent cess on crude soybean and soyoil imports but cut basic customs duty on both the commodities to 15 per cent from 35 per cent, effectively keeping the import tax unchanged, Ms Sitharaman said.

India's palm oil imports have been rising since December 2020 after the country had cut its import tax on the oil to 27.5 per cent in late November.

India buys palm oil from Indonesia and Malaysia, while other oils including soyoil and sunflower oil come from Argentina, Brazil, Ukraine and Russia.

Palm oil was earlier attracting 8.25 per cent less import duty than sunflower and soyoil, said Sudhakar Desai, president of the Indian Vegetable Oil Producers' Association, adding "Now that difference has reduced to just 2.75 per cent.

"Refiners have already bought palm oil for February shipments, but they could trim purchases for March shipments, said a Mumbai-based dealer with a global trading firm.