India, the world’s biggest edible oil importer, tries to rein in local prices of the commodity and help domestic refiners and consumers. Hence, the government has cut its tax on crude palm oil (CPO) imports to 5% from 7.5%.
The reduction in the tax, known as the Agriculture Infrastructure and Development Cess (AIDC), will widen the gap between the CPO and refined palm oil import duties, effectively making it cheaper for Indian refiners to import CPO. The tax cut came into effect on Sunday.
B.V. Mehta, executive director of the Mumbai-based Solvent Extractors’ Association of India (SEA), stated that after the reduction in AIDC, the import tax difference between CPO and refined palm oil would widen to 8.25%, and this will help Indian refiners, but the government needs to increase the difference further to 11% to encourage local refining.
In a separate notification, the government also said it would extend a reduction in a separate, basic customs duty on edible oils until Sept. 30. The tax reduction was due to expire on March 31.
India imports more than two-thirds of its edible oil needs and has been struggling to contain a rally in local oil prices over the last few months. Palm oil is primarily imported from top producers Indonesia and Malaysia, while other oils, such as soy and sunflower, are imported from Argentina, Brazil, Ukraine, and Russia.
Refined palm oil imports accounted for nearly half of India’s total palm oil imports in the past few months. The share of refined palm oil could come down to 20% with the revision in the tax structure. Indian refiners have been asking New Delhi to change the import duty structure as the overseas buying of refined palm oil is cheaper than crude palm oil due to higher taxes imposed by producing countries on exports of CPO.
In view of an electorate that is highly sensitive to food price inflation, India’s government has in the past few months tried to rein in domestic prices by reducing import taxes, imposing stockpile limits and suspending futures trading in edible oils and oilseeds.