This is the letter we submitted to the Industry Chamber, and subsequently to the Government of Karnataka, to address several anomalies in the Value Added Tax (VAT) structure for coconut oil in Karnataka. Many of these issues were highlighted in an earlier post.

To,

The President
Puttur Chamber of Commerce and Industry

Subject: Revision of Value Added Tax Rates for Coconut Oil as Edible Oil

Respected Sir,

With the Union and State budgets approaching, we, as part of the coconut oil industry, humbly request the Government to:

• Reduce the current VAT rate on coconut oil (presently 5%).
• Recognize coconut oil sold in all quantities (above or below 200 grams) as an edible product and apply a uniform, lower tax rate (instead of the current 5% and 13.5%).

The following points support our request:

• Coconut oil is a staple cooking oil not only in Kerala but also in coastal Karnataka.
• Neighboring states such as Kerala and Tamil Nadu levy no taxes on coconut oil. In contrast, Karnataka imposes 5% VAT for quantities above 200 grams and 13.5% for 200 grams and below.
• Such a high tax regime makes it difficult for tax-compliant businesses to compete with non-compliant ones, resulting in a market flooded with adulterated and inferior-quality products.
• Multiple studies have shown that coconut oil is beneficial for heart and overall health; hence, its use in cooking should be encouraged.
• Coconut oil, being relatively expensive, is already at a disadvantage compared to other edible oils like palm, sunflower, and soybean oil, which are imported without customs duty and pose a threat to local farmers and industries.
• While other edible oils are subject to lower tax rates, coconut oil suffers from higher taxation, creating an unfair market imbalance.
• Low-income individuals and daily wage earners often buy cooking oil in small quantities (50 ml, 100 ml, 200 ml), which currently attract a hefty 13.5% VAT.
• Over the past year, prices of essential commodities such as coconuts and coconut oil have doubled, making them less affordable to middle- and lower-income consumers.
• We manufacture coconut oil for edible use, following the Prevention of Food Adulteration (PFA) guidelines and possessing the necessary Edible Oil Packing License. However, our products are taxed at rates meant for cosmetics, not food items.
• As an essential commodity, coconut oil has a highly price-sensitive market. Any tax reduction will directly benefit farmers and lower-income consumers.

We request you to kindly forward this matter to the relevant government departments for appropriate action.

Thanking you,

Yours faithfully,

For Cocoguru Coconut Industries Pvt. Ltd.
B. Keshava Ram
Managing Director

Update on 25th February 2011: The Karnataka Government increased the VAT rate for goods taxed at 13.5% to 14%.

Update on 1st August 2012: The rate was again increased from 14% to 14.5%, effective from 1st August 2012 to 31st July 2013.