Pakistan Budget Review 2018 – 19 and Impact on Palm Oil

The fiscal budget for 2018 – 19 was announced on April 27, 2018 which aims to bring more people under the tax net and increase the government’s earnings considerably. The government has set the fiscal year growth target at 6.2% against the target of 6% set for the current year. Government also announced 2 amnesty schemes a few weeks ago allowing people to declare assets within and outside the country at nominal tax rates of 2% to 5%. This measure is aimed at allowing people to bring most of their assets to Pakistan and increase the size of the economy.

The Chairmen of Pakistan Vanaspati Manufacturers Association (PVMA) and All Pakistan Solvent Extractors Association (APSEA) issued a joint letter to the Federal Bureau of Revenue suggesting not to change the existing duty structure on the import of oils and fats in the country as it provides a level playing field for all commodities. (Letter attached)

Following is the revised duty structure for the fiscal year 2018 – 19 with changes marked in red:

HS Codes		Particulars	Custom Duty PKR / MT 2017 – 18	Custom Duty PKR / MT 2018 – 19
1511.9020		RBD Palm Oil	9,180	9,180
1511.9030		RBD Palm Olein	7,692	7,692
1511.1000		Crude Palm Oil	6,800	6,800
1511.9010		RBD Palm Stearin	7,692	7,692
1513.2100		Crude Palm Kernel	7,692	7,692
1511.9090		Others	9,180	9,180
1507.1000		CD Soybean Oil	9,050	12,000
1512.1100		Sunflower Oil	15,000	15,000
1508.1000		Groundnut Oil	13,150	13,150
1509.1000		Olive Oil	5,000	5,000
1512.2100		Cottonseed Oil	15,000	15,000
1513.1100		Coconut Oil	9,050	9,050
1515.5000		Sesame Oil	9,050	9,050
1804.0000		Cocoa Butter Substitute	10,800	10,800
Additional Duties
1	PODB Cess Fund		PKR 50/MT	PKR 50/MT
2	Additional Custom Duty		1%	2%
2	Sales Tax / Central Excise Duty		16%	16%
3	Advance Income Tax		5.5%	5.5%
4	Federal Excise Duty		PKR 1000/MT	PKR 1000/MT
5	Warehousing Surcharge		0.25%	0.25%
Conversion US$ 01 = PKR 116

The government has however, increased the duty on import of CD soybean oil from existing PKR 9,050 PMT to PKR 12,000 PMT. According to government sources, this increase in the duty is aimed to protect locally produced soft oils. PVMA, in their earlier budget proposal had requested the government to increase the duty on the import of soybeans as it enjoys a lower duty as compared to imported edible oils.

The government has also increased the additional custom duty from 1% to 2% on import of all oils and fats across the board.

Impact of Increase in Soybean Oil Duty on Import of Palm Oil

The increase in the import duty of soybean oil will not have any impact on the import of palm oil as both oils are catering to completely different market segments. Palm oil imported in Pakistan is mainly used to manufacture vanaspati and is also a major feedstock of the food industry. However, the soybean oil imported in Pakistan is being used to cater to the soft oil market and is directly competing with locally produced soft oils.

The import of soybean oil in 2017 amounted to 221,150 MT which was 6.9% of the total import of oils and fats.

Following is the table of oils and fats import in 2017:

 

Commodity	Jan – Dec 2016 (MT)	Jan – Dec 2017 (MT)	Changes Volume MT	Changes %
Crude Palm Oil	115,348	121,815	6,466	5.61
Palm Oil	996,618	1,073,142	76,524	7.68
Palm Olein	1,301,212	1,634,537	333,325	25.62
Palm Fats	86,167	98,715	12,548	14.56
Soybean oil	152,098	221,150	69,051	45.40
Tallow	–	12,505	12,505	100.00
Total	2,651,443	3,161,863	510,420	19.25

Source: Shipping Agents’ Vessel Report

Financial Impact of Change in Duties

Based on the current commodity prices, the increase of PKR 3,000 PMT in the import duty of soybean oil and 1% increase in the additional custom duty would have the following additional financial cost on imports of the major edible oils in Pakistan:

Commodity                  Additional Cost

CD soybean oil              USD 41.18 per MT

RBD palm oil                 USD 8.12 per MT

RBD palm olein             USD 8.25 per MT