8/8/06 (Allafrican.com)  - Nairobi. Bidco Oil Refineries has asked the East African Legislative Assembly (EALA) to persuade Tanzania to drop the 10 per cent import duty on crude palm oil imposed in this year's budget.

The company, a major player in the edible oil and soap sector in East Africa, also wants Tanzania to revert to the 25 per cent import duty on refined bleached and deodorised (RBD) palm stearin - cooking fat normally imported and converted to make soaps - which has been reduced to 10 per cent.

According to Bidco Group's corporate strategy chief officer, Sanjay Soman, the tariff on crude palm oil and reduction of import duty on RBD palm stearin to 10 per cent will adversely affect East Africa's edible oil industry.

"With the 10 per cent import duty on crude palm oil, the edible oil and soap industries in Tanzania, Kenya and Uganda will become uncompetitive since the finished products will be too expensive," Mr Soman says. On the other hand, he says, Kenyan and Ugandan edible oil industries will have to compete against imported RBD palm stearin from Tanzania at zero Comesa tariff.

Tanzania's Finance Minister Zakia Meghji announced the new tariffs during this year's budget in June.

The minister said the move was aimed at "protecting and motivating local farmers" to produce more oil seed.

However, Tanzanian industry players say the new tariff arrangement will hurt refineries, which have invested more than $80 million over the past three years to modernise their factories and increase their refining capacity.

On July 20, Mr Soman appealed to members of East African Legislative Assembly's Committee on Communications, Trade and Investment to intervene.

"The finance minister and policy makers in Tanzania need to immediately revert to the agreed EAC common external tariff (CET) position and restore zero per cent import duty on crude palm oil and 25 per cent import duty on RBD palm stearin respectively in the interest of the edible oil and soap industry in the region," he said.

Mr Soman added, "The massive investments made by these industries in modernising and upgrading their capacities would otherwise go waste and result in heavy losses. This will in impact negatively on the Tanzanian, Kenyan and Ugandan exchequers with lower or no corporate taxes raised."

Tanzania's decision also sent the wrong signals to foreign investors, he added.

Under the EAC Customs Union protocol, CET rates have been based on the "degree of processing" principle.

CET on raw material such as crude palm oil entering East Africa is zero-rated. Intermediate products are charged a duty of 10 per cent while finished products such as RBD palm stearin attract a 25 per cent tariff.

According to Mr Soman, the palm oil tariffs violate the processing principle.

"This move is tantamount to penalising the manufacturers who seek regional integration as an opportunity to penetrate a much larger market," he told the committee. It is a move that would obviously not offer any benefit to the farmers as purported," he told the committee.

Although the committee did not say what action it would take, its chairperson, George Nangale, acknowledged that tariffs on crude palm oil were a hot issue in Tanzania.

He deplored the new trend of partner states making unilateral decisions on important issues without consulting other Community members.

The main sources of oil for the edible oil and soap industries are cotton seed, sunflower and palm oil.

Industry players argue that local capacity for the production of oilseeds in Tanzania can only meet about 23 per cent of the country's total demand.

This huge gap is normally plugged through imports from Malaysia and Indonesia.

"It must be noted that all the oilseeds produced locally find a ready market and oil manufacturers would like to source their oilseeds locally because it would lead to enhanced income for the farmers," said Mr Soman.

However, to meet the huge demand for crude palm oil, there must be large-scale farming of palm oil plantations with a contracted farmers arrangement," he said.

Last year, Tanzania produced a total of 10,000 tonnes of crude palm oil mainly in Kigoma and Kyela districts.

"A 10 per cent import duty on crude palm oil will in no way stimulate the supply side because there are no large-scale edible oil plantations in Tanzania," said Mr Soman, whose company has planted over 40,000 hectares of edible oil palm trees in Uganda.

The reduction of tariff on RBD palm stearin, however, was meant to give relief to standalone soap industries who use it as a raw material for making soap.

And although it is estimated that 13 of the 18 industries operating currently are standalone soap manufacturers, Mr Soman claims composite edible oil industries in the region would be the most affected.

He said, "The few standalone soap industries are not big enough to be adversely affected by a reversal of the decision."