Ghee/cooking oil: Budgetary measures to increase prices by Rs 5 per kg

The simultaneous increase of additional customs duty from 1 to 2 percent on import of soybean and palm oil and raise in customs duty from Rs 9,050 to Rs 12,000 per metric ton on import of soybean oil would result in minimum increase of Rs 5 per kg in prices of ghee/cooking oil.
Explaining impact of budgetary measure taken for edible oil industry through Finance Bill 2018, experts told Business Recorder that unprecedented and unjust enhancement in custom duty on import of soybean oil has been enforced through Finance Bill 2018. The duty is proposed to be enhanced from existing Rs 9,050 to revised Rs 12,000 per metric ton ie an increase of Rs 2,950 or 35 percent.
At the same time, additional custom duty previously applicable on import of soybean and palm oil at the rate of one percent is also increased by another one percent ie 2 percent. This doubling of the additional custom duty on import of soybean/palm oil would have an overall incremental impact of Rs 1,100 per ton.
According to manufacturers of ghee and cooking oil, the adjustment of duty in cost of raw material will increase the price of end products by minimum Rs 5 per kilogram and litre.
The edible oil sector in its correspondence to FBR and meeting with Haroon Akhtar Khan, Special Assistant to PM on Finance explained that such move will automatically increase price of food items by Rs 5 to 6 per Kg. Moreover, the measure would result in less import of soybean oil due to increased duty on this item. The replacement would result in increased imports of canola, sunflower and soybean oil seeds which are subjected to lowest rates of duties and taxes. Thus, the FBR would suffer estimated revenue loss of Rs 15 billion per annum following decreased imports of soybean and palm oil as a result of increased duties on these two items.
Prior to budget (2018-19), tax experts said that the tax structure applicable on import of soybean seed was relaxed @ 3% customs duty, 6% sales tax and 5.5% advance income tax that too adjustable, whereas on import of soybean oil the structure was already too high as Rs 9,050 or about 12% customs duty, 16% sales tax and advance income tax @ 5.5%. Identical duty structure was applicable on all other edible oils imported in Pakistan such as RBD palm oil and olein.
A comparison of the taxation structure on the import of soybean seed and soybean oil before budget (2018-19) revealed that reduced rate of 6 percent sales tax is charged on the import of soybean seed which is against the FBR policy of charging a uniform rate of sales tax at 17 percent ie standard rate of sales tax. Under the FBR policy, the tax authorities had rationalized sales tax rates on a number of items bringing them on standard rate of 17 percent. At the same time, the lower rates of sales tax were increased to 17 percent under the same policy. However, discriminatory tax treatment on the imports of soybean seed is evident from the fact that a very low rate of sales tax has been charged at the import stage, creating serious disadvantages to the higher rates of taxes charged on the import of soybean oil/palm oil.
The industry also remarked that any such move would disturb the level playing field amongst stakeholders and promote the anticompetitive regime in violation of prevailing Competition Commission of Pakistan (CCP) advisory rulings.
The Pakistan Vanaspati Manufacturers Association (PVMA) and All Pakistan Solvent Extractors Association (APSEA) joint delegation is likely to meet Finance Minister Miftah Ismail and Haroon Akhtar Khan to impress upon withdrawing of duty structure changes proposed in Finance Bill 2018-19 keeping in view revenue implications and substantial raise of Rs 5 per kg in prices of ghee/cooking oil.