India announces tax cuts on crude palm oil in move to shield consumers from high prices 

INDIA – India has reduced its tax on crude palm oil (CPO) imports to 5% from 7.5% in an effort to rein in local prices of the commodity and help domestic refiners and consumers. 

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. 

The country imports palm oil mainly from top producers Indonesia and Malaysia, while other oils, such as soy and sunflower, come from Argentina, Brazil, Ukraine and Russia. 

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. 

“After the reduction in AIDC, the import tax difference between CPO and refined palm oil would widen to 8.25%,” said B.V. Mehta, executive director of Mumbaibased Solvent Extractors’ Association of India (SEA).  

“This will help Indian refiners, but government needs to increase the difference further to 11% to encourage local refining.” 

Cheaper crude oil will be translated into cheaper refined oil products, relieving some of the pressure that consumers in world’s biggest edible oil importer are currently facing.  

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 had been due to expire on March 31. 

A boon for local refiners

Refined palm oil imports accounted for nearly half of India’s total palm oil imports in the past few months, said Sandeep Bajoria, chief executive of Sunvin Group, a vegetable oil brokerage and consultancy firm. 

 “The share of refined palm oil could come down to 20% with the revision in the tax structure,” Bajoria said.  

Indian refiners have been asking New Delhi to change the import duty structure as the overseas buying of refined palm oil was cheaper than CPO due to higher taxes imposed by producing countries on exports of CPO.  

It’s not just vegetable oil that has been experiencing a price rally.  

Rising prices of essential kitchen items pushed the retail inflation to a six-month high of 5.59 per cent in December, close to the Reserve Bank’s upper tolerance limit of 6 per cent. 

 The Consumer Price Index (CPI) based retail inflation was 4.91 per cent in November 2021 and 4.59 per cent in December 2020. 

Mindful of an electorate that is highly sensitive to food price inflation, India’s government 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. 

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