Shipping cos demand restructuring of taxes

The upcoming Union Budget may give a major boost to the shipping industry, which has been hit hard by a plethora of taxes.

The Indian National Shipowners' Association (Insa) has presented a detailed wish-list to the Director General of Shipping (DGS), in which it has sought restructuring of 12 taxes which are making the shipping industry uncompetitive globally.

The DGS's response in this regard has been positive, Mercator Group Chairman and Managing Director H K Mittal said.

"We want a level-playing field," Shipping Corporation of India Chairman and Managing Director S Hajara said. The tonnage tax regime of 0.5 per cent to 2 per cent was introduced to move away from the plethora of taxes on shipping companies, including service tax, minimum alternate tax and withholding tax.

But, Hajara said, the tonnage tax accounted for merely 10 per cent of the total tax paid by shipping companies, making it difficult for Indian companies to operate in a competitive environment. Nowhere in the world so many taxes were levied on shipping companies, which is virtually eating into the margins of the companies, making it difficult for them to expand, shipping sources said.

Drawing parallels with the aviation sector, shipping industry sources said foreign carriers could not operate from India without getting a prior permission.

This is not so in the case of shipping sector. Any vessel with a foreign flag can operate in and out of an Indian port as long as they follow the statutory requirements of safety and security. As shipping was a free industry, foreign vessels sailing on Indian waters had to pay no taxes whereas Indian vessels had to pay huge amount of taxes thus affecting the growth of the industry, Hajara said.

Seafarers' taxation is another grey area for domestic shipowners. Seafarers, who work for Indian ships, have to pay tax whereas if they work for foreign vessel then they don't have to pay tax. This has led to erosion of quality personnel to foreign flag vessels who are being promised "higher take-home salary".

So, Insa's suggestion is that a fixed rate of tax be collected from Indian seafarers irrespective of the vessel they work for.

Insa wants exemption of customs duty on import of materials for repair and maintenance of ships.

The other taxes from which INSA wants relief include corporate income tax on other income, lease tax on charter hire charges, sales tax/value added tax (VAT) on ship supplies/spares, customs duty on import of certain categories of ships, stores, spares and bunkers, fringe benefit tax, dividend distribution tax and wealth tax.