June 4: Industrialists from across the country have urged the government to withdraw the proposal to impose 10 percent customs duty on the import of raw materials required for the vegetable ghee and oil industries arguing that the refined products accounts for 47 percent share in Nepal’s export.
After the government hiked the customs duty while announcing budget for the upcoming fiscal year on May 29, the owners of 26 industries demanded that there should be the same arrangement as before.
Bipin Kabra, a member of the Nepal Vegetable Ghee Oil Producers Association said that if they pay 10 percent customs duty and 15 percent excise duty on unrefined oil they would be handing 25 percent revenue to the government. As a result, they will be unable to compete in the Indian market, rendering them unable to operate business. Kabra argued that India has maintained a zero customs rate on the import of raw materials including palm oil, while only 5 percent GST has been imposed.
In FY 2022/23, the government imposed 1 percent customs duty on raw materials of soybean, mustard, sunflower, and palm oil. The government had also given 90 percent exemption on 5 percent customs duty on mustard seeds. President of the association, Sandeep Kumar Agarwal said that the government should amend the budget immediately to protect the investment of 26 industries and ensure the employment of 15,000 people who are directly or indirectly involved in those industies.
The domestic industry has been importing unrefined oil and processing it and exporting refined oil to India taking advantage of the difference in customs duty in India and Nepal. In the year 2019/20, refined oil worth Rs 31.13 billion was exported from Nepal, Rs 55.90 billion 2020/21, and a record of Rs 93.69 billion in 2021/22. However, in the 10 months of the current fiscal year, the export decreased to Rs 27.27 billion after India imposed zero customs duty on crude oil import and reduced GST to 5 percent.
Nepal received foreign currency worth Rs 7.50 billion through the export of refined oil in the year 2019/20. This figure increased to Rs 13.50 billion in the year 2020/21 and to Rs 20 billion in 2021/22. By mid-May of the current fiscal year, the amount earned from ghee and oil exports shrunk to Rs 6 billion.
The vegetable ghee and oil industries belonging to the association were paying income tax of Rs 1 billion annually in previous years. Naresh Rathi, another member of the association, said that after the decrease in exports in the current year, the industries suffered a loss of Rs 1 billion in 10 months.
Rathi said that in order to sustain the industry and continue employment, the government should create an environment where ready-made goods can be exported to India by imposing lower taxes than India as there is a tax gap of 20 percent between India and Nepal.
Otherwise low-quality oil would enter Nepal through illegal routes from India, which would have a negative impact on both the health of the people and the revenue of the government, he warned.