India Seen Raising Cooking Oil Import Taxes to Guard Growers
India, the largest cooking oil consumer after China, will probably increase taxes on imports to shield oilseed farmers from cheap palm supplies from Indonesia and Malaysia, according to a trade group. Futures declined.
The government may raise the tariff on unprocessed oils to 10 percent from 2.5 percent in the federal budget next week, while the tax on refined varieties could increase to 20 percent from 7.5 percent, B.V. Mehta, executive director of the Solvent Extractors’ Association of India, said in a phone interview.
India will present its annual budget on Feb. 28 and Finance Minister Palaniappan Chidambaram is seeking to raise revenue, partly by increasing taxes on commodities. Tariffs on gold imports may rise for a second time this year to curb a record current-account deficit, according to the All India Gem & Jewellery Trade Federation. Imports of palm and soybean oils surged to a record last month as refiners boosted purchases before the government imposed a tax on Jan. 17.
“If the government increases duties there may be a temporary setback to imports and palm product prices may drop in Indonesia and Malaysia,” said Prasoon Mathur, an analyst with Religare Commodities Ltd. “Even if local supplies are comfortable, India will still keep importing palm products as there is a price advantage.”
D.S. Malik, spokesman at the finance ministry in New Delhi, declined to comment on possible tax changes yesterday.
Domestic inventories of vegetable oils surged to a record 1.75 million metric tons after imports climbed 27 percent to 2.77 million tons in the three months ended Jan. 31, the extractors’ association said Feb. 14.
The government may refrain from raising taxes because of concern about inflation, said Religare’s Mathur. While wholesale inflation eased to a 38-month low of 6.62 percent in January, the increase in consumer prices accelerated to 10.79 percent, one of the highest levels in major economies.
The contract for May delivery fell 0.2 percent to close at 2,532 ringgit ($817) a ton on the Malaysia Derivatives Exchange today, widening soybean oil’s premium over palm to $326.57. That was on a day when crop futures climbed at least 0.3 percent in Chicago.
Malaysia cut taxes on crude exports to zero in January and February to clear record stockpiles that reached 2.63 million tons in December. The duty will be 4.5 percent in March after an increase in global prices, according to the customs. Indonesia may keep the rate unchanged at 9 percent next month, the Indonesian Palm Oil Association said Feb. 19.
Indonesia and Malaysia are the top producers of palm, which accounted for about 79 percent of Indian cooking oil imports in January. Palm and soy are the most consumed edible oils.
“Local oilseed prices have fallen and they will go down further if imports increase,” said extractors association’s Mehta. “Farmers will lose interest in growing oilseeds. The government should immediately increase the taxes.”
Oilseeds output in India will drop to 29.5 million tons in the year ending June 30 from 29.8 million tons a year earlier, the farm ministry said Feb. 8. Mustard futures fell 22 percent on the National Commodity & Derivatives Exchange Ltd. in Mumbai in the past six months as soybeans lost 16 percent.
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