Government to lose Tshs. 15 billion

east africa news
By Lilian Lyimo, IPP Media
Wed, Feb 23, 2005

The tariff on raw materials was formerly fixed at 25 per cent, but later reduced to 10 per cent with suspended duty of 10 per cent. In the second move, crude palm olein forced importers to pay 20 per cent tariff.

Crude Palm olein is obtained when crude palm oil undergoes fractionation and refining.

Out of the process, two products result: refined, bleached and deodorised (RBD) olein, which is used in the manufacture of edible oil and RBD stearin that is used in the manufacture of soap.

After the East African Customs Union came into force on January 1, this year, the government decided to lower the import duty on crude palm olein to zero and raised that of basic raw materials used in the manufacture of soap, RBD palm stearin to 25 per cent.

Sources said the removal of the tariff was done after some manufactures argued that crude palm olein could be used to manufacture edible oil and soap.

They also argued that removing the tariff would encourage edible oil mill owners to buy locally produced materials.

Explaining how the government would lose the money, an expert in the soap industry, Egid Marika, told The Guardian recently that importers of the semi-processed palm oil buy an average of 110,000 tonnes of the raw materials per year, valued at US$550 per tonne CIF (A:cost,insurance,freight).

This translates to 60,500,000/- if the material is levied 25 per cent import duty.

By lowering the tariff to zero, the government forfeited the 25 per cent duty it would have earned from import of crude palm olein.

By setting the duty for palm olein at zero, the government stands to lose about 15bn/- this year and in subsequent years to come because of this policy.

I don't see why it should needlessly incur the loss,the expert, who is a chemical engineer and works at a Tanga soap factory, explained.

He argued that there was no rationale in the abolition of import duty on palm olein, as even the suppliers, Malaysia and Indonesia, have imposed export duty on the material.

Stand-alone factories do not have the fractionation facilities and have thus two options: either to import RBD palm stearin from Indonesia or Malaysia and pay duty of 25 per cent or purchase locally from their local competitors.

Either way, local soap manufacturers are being strangled.

The 25 per cent duty is too high to enable them to operate profitably.

On the other hand, local suppliers of RBD palm stearin, who are only three, will only do so after meeting their requirements and at a price that their competitors may not afford,he noted.

According to the sources, at present there are three factories that have fractionation plants, which also manufacture soap and edible oil.

He said that, following the government's decision to impose zero-tariff, factories with fractionation plants could import semi-processed palm oil and process it to get RBD palm stearin, which is not charged import duty.

We don't understand how the government has failed to see that by removing import duty, it has also killed free-market competition in the soap industry and created a conducive environment for those who have fractionation facilities to create a monopoly of the business,he observed.

He added: under the circumstances, the government cannot monitor how much RBD palm stearin the plants would produce, how much they would sell to stand-alone factories, at what price and how much they pay in taxes.

There is also an element of cheating that the government failed to detect.

Those who have fractionation plants do not import crude palm oil as they claim but crude palm olein, which is a semi-processed product.

They thus import a product and not raw material,�he added.

Relating the situation to the East African Community Customs Union, Exaud Shilla, who works in a soap factory in Dar es Salaam as a marketing manager, said that Tanzania soap producers would fail to compete, as their cost of production would be higher than those of their counterparts in Kenya and Uganda.

The Kenya and Uganda governments have set the import duty of BDR palm stearin at zero.

Obviously the cost of production of soap in these countries is cheaper than those incurred by stand alone factories in our country, which have to pay import duty of 25 per cent for the same material.

Subsequently the products from Kenya and Uganda will be cheaper than ours,�he explained.

He warned that under the circumstance, stand-alone factories have less than six months to operate before they will be forced to close down. Six months could be an overstatement,�he noted.

Finance Minister Basil Mramba said that government has not approved the idea of scrapping of import duty on crude palm olein as had been requested by edible oil manufactures who have fractionation plants.

It is true that they had requested that we set the tariff to zero but we turned down the request for several reasons.

One is that we realised they do not import crude palm oil as they claim but a semi-processed product. This cannot be imported without duty,he explained.