India cuts CPO import tax to 5% in aid of refining industry

Author: Priya Jestin


MUMBAI (ICIS)--India has reduced the import tax on crude palm oil (CPO) to 5% from 7.5% in a bid to reduce high edible oil prices in the country and also to help the domestic refining industry.

The country is the world’s largest importer of palm oil, buying nearly 9m tonnes annually, mainly from Indonesia and Malaysia - the two major producers of palm oil.

It fulfills nearly 70% of its edible oil consumption through imports.

In a notification dated 12 February, the reduction in the tax known as the Agricultural Infrastructure and Development Cess (AIDC) will bring down the effective duty on CPO imports to 5.5% from 8.25%.

Cess is a special tax levied over and above the basic tax rates. The AIDC was introduced in February last year to fund developing agricultural infrastructure.

Following the reduction in AIDC, the difference between the tax rates of crude and refined palm oil (CPO) and refined bleached and deodorized (RBD) palm oil has increased which is expected to benefit local refiners.

“After the reduction in AIDC, the import tax difference between CPO and RBD palm oil would widen to 8.25%," B V Mehta, executive director of industry body Solvent Extractors' Association (SEA) was quoted as saying in media reports.

The association has been demanding that the difference of effective duty between CPO and RBD palm oil be increased to 11% to curb increased imports of RBD palm oil.

In December 2021, the government had reduced the import duty on RBD palm oil and RBD palmolein to 12.5% from 17.5%.

As edible oil prices have been rising steadily since 2021, the government has taken many measures to reduce prices. In October 2021, the government exempted CPO from the 2.5% basic customs duty until 31 March 2022.

India had steadily been reducing customs duty on CPO almost all of last year until October 2021, when it was totally scrapped.

In a notification over the weekend, the Central Board of Indirect Taxes and Customs (CBIC) extended customs duty exemption on CPO by six months until 30 September 2022.

Separately, the government has also issued notifications to states to implement stock limits on edible oils to prevent hoarding which could lead to further increases in edible oil prices.

The government has put in place these measures as it does not expect edible oil prices to fall in the near future.

Focus article by Priya Jestin