With retail inflation of edible “oils and fats” rising to the second highest level in 2021 in September, the government on Wednesday lowered the agriculture tax on imported oils to 5% and 7.5% on various items from 20% earlier while also removing 2.5% basic. import duties.
However, the fee reduction may not bring any significant relief to consumers despite the government’s potential to lose around Rs 34,000 crore in revenue, analysts said, noting Wednesday’s hike in palm oil prices in Malaysia.
“Consumers may not get the full benefit of the tariff reduction. In fact, after India announced the tariff cut, the Malaysian market rose by around RM150-170 per ton,” said BV Mehta, CEO of Solvent Extractors Association of India.
Wednesday’s announcement will translate into an effective reduction in import duties on crude and refined varieties of palm oil, soybean oil and sunflower oil between 16.5 and 19.25 percentage points. The reduction will be effective from October 14. Consumer price inflation (CPI) in oils and fats rose 34.19% in September, just below 34.78% in June. The government has realized that the situation may not improve before the arrival of the next spring oilseed crops as there is likely to be a reduction in production of two major autumn oilseeds – soybean and cotton.
“There has been a demand for edible oils, globally as many countries are believed to be switching to biodiesel. Besides, the prices of other commodities have also gone up this year compared to last year,” said RK Patel, edible oil expert trading in peanut oil. .
“The direct driver of this significant duty reduction is largely due to higher edible oil prices, the onset of the festive season and high food price inflation. However, the timing of the import duty reduction is a cause for concern as farmers are now harvesting fall crops of soybeans and groundnuts. Mehta said this reduction in import duties may affect farmers’ perception of their oilseeds.
However, Abhishek Jain, Tax Partner, EY said: “Due to the high prices of edible oil, the government has lowered the base tariff rates on crude oil as well as edible oils. The decision will be highly appreciated by the industry and will also help reduce the price burden on the end consumers.”