India's tax hike on crude palm oil imports could cut shipments

India cut the basic import tax on crude palm oil to 15% from 27.5%, but imposed a 17.5% "cess" - a separate tax - on the imports.

MUMBAI: India 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.

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

The cess would provide resources for "an immediate need to improve agricultural infrastructure," 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% tax against 30.25% 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," Mehta said.

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

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. - Reuters

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