10/02/2008 (The News International, Pakistan), Karachi - The government cannot reduce customs duty on import of palm oil because it will result in drainage of Rs2 billion from the national exchequer while relief to customers will be negligible, a top official told The News on Saturday.

Rise in edible oil prices is a global phenomenon and there is not much that could be done to stop subsequent inflationary effect in the local market, said Shahab Khawaja, Secretary Ministry of Industries.

“Unfortunately, the government cannot do anything about this,” he said. “FBR (Federal Board of Revenue) has already rejected the idea of reducing the fixed 15 per cent sales tax and even if customs duty is reduced to Rs6,000 from Rs9,500, it will make an impact of just Rs3 per kg.”

The country’s annual consumption of edible oil is close to 3 million tonnes and it imports 1.3 million tonnes of palm olein, the basic raw material used in preparation of ghee and cooking oil, from Malaysia and Indonesia.

A fixed customs duty of Rs9,500 per tonne and a variable sales tax of 15 per cent are collected on palm olein import, which according to edible oil manufacturers add to the cost. With a continuous surge in palm olein prices on the back of strong demand the world over, the price of edible oil in the country has inflated by 71 per cent over the last 12 months.

Wholesale dealers in Karachi, where ghee prices are normally less than other parts of the country due to its low quality, are selling a 16kg tin of ghee at Rs1,710.

It was being sold at Rs1,000 in January 2007. Since the price spiral began, Pakistan Vanaspati Manufacturers Association (PVMA) has been pursuing the government to cut import duties. Instead the government has pushed for subsidised sale of edible oil through Utility Stores Corporation (USC).

USC Managing Director Brig Hafeez Ahmed said three companies including Dalda and Habib Oil have been short-listed for the purpose of supplying edible oil to utility stores.

“These companies were chosen by a foreign agency, which rated the ghee manufacturers,” he said, adding the three finalists have been asked to submit bids at which they will sell edible oil to USC.

But many members of PVMA fear the purpose of subsidising edible oil is unachievable through USC. Besides the limited reach of USC outlets, they say, artificially low prices will only encourage people to hoard and resell it on higher rates.

“Can you really expect ghee being sold at Rs67 per kg at utility stores to reach the targeted customer when its wholesale cost is Rs120?” asked an official of PVMA on condition on anonymity. “Very unlikely, no one will miss that much of profit.”

Meanwhile, the government will soon launch a media campaign to educate people about the health risks associated with usage of ghee, Shahab, the secretary for industries, said. He said the cabinet has asked the ministry to use mass media to encourage people to use alternatives like cooking oil. “People in our country are too fond of ghee. We cannot impose a ban on its use,” he added referring to his presentation given to government on the subject.