It is logical that per unit cost of a commodity sold in bulk is less than that sold in lesser quantity. But that difference isn’t very significant. Ideally, if 1 litre of coconut oil pouch costs 60 Rs, 100 ml pouch should be around 6.5 Rs if not just 6 Rs. Government tax laws makes it costlier.

Here is how
Pure coconut oil is used all over India as a hair oil (cosmetic purposes), but people of coastal Karnataka and Kerala also use it for cooking (edible purposes). Edible items are considered essential commodities and are taxed less. The government, in its bid to differentiate the usage of pure coconut oil, has come out with this dubious way of classification. All packets above 200 are for edible purposes and attract no excise duty and 4% VAT. All packets at or under 200 gms attract 8.24% excise duty and 13.5% VAT OR combined (8.24% + 13.5% + 8.24%*13.5%) 22.85% ~ 23%. So, a 100 ml pouch, which was 6.5 Rs without tax, now becomes 8 Rs after tax, i.e. 80 Rs per litre. 1 litre pack, which was 60 Rs before tax, will become 62.4 Rs after tax. That is a difference of 17.5 Rs or 28%!

Why is this dubious?
Lower end consumers like the daily wage workers who use coconut oil for cooking like to buy in smaller quantities. They have to shell out 28% extra for an absolutely essential item like edible oil despite their inability to afford. Government is essentially heavily taxing those poor consumers while it should have done it otherwise.

This anomaly presents a great opportunity to unorganized coconut oil manufacturers to avoid taxes and sell cheap gaining a clear 23% (combined tax) price advantage over branded organized players. The consumers at this segment are extremely price conscious and are willing to switch brands for price difference. How can brands compete with them?

A more sensible way is to classify based on whether they follow the food standards, i.e., the Prevention of Food Adulteration Act (PFA), and have an Edible Oil Packing (EOP) License. Those brands that follow PFA guidelines and have EOP licenses should be considered essential and hence less tax.

News item about the same issue – Marico will move court on the coconut oil excise notice, and Dabur may follow suit.