Ahmedabad, April 4 (IANS) States need to abolish value-added tax (VAT) on edible oils to control the spiralling prices, according to Solvent Extractors’ Association of India (SEAI). “The centre has done its bit in regard to VAT. Now the states must abolish VAT so that the edible oil price rise could be kept under check,” B.V. Mehta, secretary of SEAI, told IANS.

The SEAI, in its pre-budget memorandum to union Finance Minister P. Chidambaram said: “It is observed that there are differences in the percentage rates and rules from state to state under VAT for oilseeds, oilcakes and oils.”

“The prevailing high rate of tax with its cascading effect makes it difficult for the indigenous oilseeds sector to face the challenges of globalisation. The state finance ministers may be requested to place oilseeds, oilcake, rice bran and their derivatives in the category of one percent VAT,” it added.

The SEAI also sought that an “oilseeds and oil development fund” be created by imposing development cess on imported edible oils.

According to the association, a comprehensive package of fiscal measures can be evolved to finance programmes aimed at increasing oilseeds production to meet the rising demand for edible oil.

Mehta said the demand for edible oils is around 12.5 million tonnes a year or one million tonnes a month.

To bridge the gap between demand and supply, the country is compelled to import about 4.5 to 5 million tonnes of edible oils a year.

Sources said India was the second largest buyer of vegetable oils after China. Edible oil imports during the current oil year (November 2007-October 2008) is expected to cross Rs.150 billion ($3.75 billion).

In the 2006-07 oil year, the production of oilseeds plunged to 23.9 million tonnes from 27.9 million tonnes during the previous year (2005-06).

Though the output in the current year is estimated at 25.5 million tonnes, it will still be below the 2005-06 level.

The SEAI said oil seeds were grown mainly on marginal and sub-marginal lands under low input usage.

Moreover, less than 25 percent of the oilseed area is irrigated, rendering cultivation vulnerable to weather-related yield risk. This has resulted in slow growth in oilseed production and continued low yields.