ESTHER MSETEKA, Lusaka
VARIOUS players in the edible oi l indus t ry are calling on Government to remove the 16 percent value added tax (VAT) on cooking oil to enable them to compete fairly against imported cheap edible products.
Currently, Zambia imports crude palm oil worth over US$70 million annually.
Crushers and Edible Oil Refiners Association (CEDORA) representative Dharmesh Patel argued that there is urgent need for Zambia to remove VAT on edible oil just like Zimbabwe, Tanzania, Mozambique, and South Africa, among others, have done.
Recently, the Malawian Revenue Authority removed the 16.5 percent VAT on cooking oil to boost local capacity.
Malawian Minister of Finance, Economic Planning and Development Goodall Gondwe explained that Government decided to remove VAT after receiving complaints and representation from the Malawi’s Cooking Oil Producers.
The producers explained that they were not able to compete with smuggled oil on account of the duty they pay.
“To check on smuggling and protect local industries, we are proposing exempting cooking oil from VAT,” Mr Gondwe said.
And a check by the Daily Mail found a huge influx of imported cooking oils alleged to have been smuggled into the country.
The brands include Pan Palm, Sunsstar, Golden Valley, Pam Olein, Dona, Ajwa, Peonu, Eco Fry, Quick Fry, and Eden Gold, among others.
The edible oil producers argued that smuggled brands are selling 16 percent less of the amount that local firms include on their products.
And the local traders say they are buying foreign cooking oil because it is affordable.
He explained that Zambian cooking oil is too expensive and sales are slow as compared to imported ones.
“Most of our customers prefer to buy the imported oils because they are cheap and we make a lot of money from it. We hear it is smuggled, but the price for us in business, it’s good,” Mr Patel noted.
Responding to questions, he said it will only be fair to level the trading field to enable local businesses to flourish.
Q. What are the benefits of VAT removal on edible oil?
Ans: Currently, most of Zambia’s neighbours have no VAT on cooking oil as a result this is disadvantaging the local industry.
Zambia has an oil seed crushing capacity of over 700,000 tonnes and the industry may still grow. In a few good seasons, Zambia may become self-sufficient on edible oils, and may not require importing crude or refined oil.
Equally, the soya crop has grown from 70,000 tonnes about six years ago to over 300,000 tonnes this year, with small-scale farmers playing a bigger role every year.
Agreeably, it is true that Zambia needs to import oil as it is not self-sufficient on crude oil production, hence the need to do so. However, currently the industry has adequate capacity to process and refine crude oil to meet the demands of the country and export.
Q. How does VAT affect soya, sunflower and cotton farmers?
Ans: There has been a great increase in oil seed production and over the last few years, the country has witnessed more participation from small-scale farmers but failure to address the VAT issue on oil by Government has resulted in farmers getting lower prices for their product that is currently selling at K2.70 per kilogram compared to K5 in the previous years.
Therefore, the advantage of removing the 16 percent VAT is that the industry players will be able to sell their goods at a fair price, create room for new stock and market for the farmers who will in turn get a better deal because there is demand for the crops.
Such a ‘metrics’ helps to reduce the dependency on maize and the farmer input support programme by farmers.
Q. But what are the economic effects of removing VAT on oil?
Ans: The removal of VAT may have revenue issues for Government in the short-term. However, the medium to long-term benefits by far outweigh the same.
Such a move will have immerse benefits for people as the product will become more affordable while industries will have the capacity to create thousands of direct jobs and close to about 400,000 subsistence farmers will find better market for their crops.
Therefore, a growth in oil seed production would equate Zambia producing more crude oil locally, thereby saving the country’s foreign exchange.
This will then translate into Zambia having an increase in the inflows of foreign exchange as the products from oil seed processing will be crude and edible oil, and animal feed meal that has an export market in South Africa, Zimbabwe, Botswana, Namibia and other countries in the region.
The removal of VAT will further boost edible oil seed processing, thereby allowing the poultry sector to grow due to better-priced products such as animal feed meal, while on the other hand, local companies will become competitive and farmers’ income levels will improve.
Q. What is the solution or way forward then?
Ans: Government should adhere to the plight of local players and consider removing VAT on edible oil to enable the consumers benefit from the low prices of the commodity.
Currently, there are three sources of edible oil in Zambia and these include oil produced from oil seed and processed locally, crude oil imported and processed here, and lastly, refined finished product imported into the country.
The removal of VAT on imported crude oil will lead to immense socio-economic benefits.
Edible oil is a necessity in our food basket, therefore, it should be VAT-free like our neighbours.