Edible oil traders in South India are exploiting the large differences in State taxes to evade the high tax rates in Tamil Nadu. As a result, organised trade in Tamil Nadu and the State Government are losing out to neighbouring States, according to large players in the business.

The State Government has to adjust its rates with that prevailing in neighbouring States to plug the loop hole and increase revenue from the edible oil trade.

A large dealer and importer pointed out that Tamil Nadu levies 5 per cent Value Added Tax on edible oils. Kerala has been levying 1 per cent VAT from April 2012, down from 4 per cent, Puducherry 3 per cent and Andhra Pradesh effectively levies 2.5 per cent VAT. It offers a 50 per cent rebate on the prevailing 5 per cent VAT linked to investments in edible oil refining units.

A trader bringing edible oil into Krishnapatnam Port in Andhra Pradesh, about 140 km North of Chennai, can bill the commodity for sale in Puducherry and pay the lower tax but sell the goods in Chennai. The trader saves 2 per cent on tax on a commodity priced around Rs 65,000 a tonne for palmolein or about Rs 75,000 in the case of sunflower oil.

Similarly, traders on the western parts of Tamil Nadu can save slightly more with billing in Kerala, where an equal quantum of Central Sales Tax can be paid.

Considering that the size of the edible oil market in Tamil Nadu is about 80,000 tonnes a month, there is a major loss of revenue that can be corrected said traders and importers.

The traders have represented the case to the State Government, they said.

Forex woes

The trade has also be hard hit by the rapid loss of value of the rupee against the dollar. Traders typically hedge only a portion of their commitment, and in the last one month have been caught completely off guard by the Rs 3-drop, an importer said.

Between May 1 and May 31, the value of the rupee against the dollar slid from Rs 52.97 to Rs 56.09, a loss of Rs 3.12.

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