 "Shipping sails on, despite storm")
In another case of the government’s right hand not knowing what its left hand is doing, seamen are being taxed retrospectively at a time when the shipping minister wants to increase contribution of water transportation in the country.
A recent report points out that the income tax department has begun issuing notices to merchant navy personnel asking them to pay taxes on income earned from working on either Indian or foreign vessels. Until now, Merchant Navy personnel enjoyed benefits similar to non-resident Indians and did not have to pay Indian taxes.
Ironically, Nitin Gadkari Minister for Road Transport and Highways and Shipping has been pulling up shipping ministry officials for the slow pace of reforms in the shipping industry. Less than two weeks earlier, Gadkari was piqued that Indian seafarers, totalling nearly 6 lakh, are a minuscule percentage in the global arena. The minister even asked officials to initiate immediate reforms to make India a hub for seafarers worldwide.
While the minister has tried to focus on seafarers with the focus of job creation, their fortunes are tied to the shipping industry in India. Seafarers have been using Indian companies as a stepping stone for getting jobs to sail under foreign flags.
Consequently, the domestic shipping industry has been complaining of its inability to attract quality manpower vis-à-vis foreign shipping companies on account of unfavourable tax structure.
Great Eastern Shipping, the largest domestic private sector player in the industry, mentioned in its latest annual report that ‘Indian officers continue to be in great demand all over the world. Given the unfavorable tax status conferred on a seafarer sailing on Indian-flagged vessels, it is becoming increasingly difficult for your Company to source officers capable of meeting the modern day challenges of worldwide trading. This is more relevant for tanker personnel and may become a hindrance to growth.’ The same issue is applicable to all shipping companies in the country.
The recent tax notices have been issued after a June judgment of an income tax tribunal in Kolkata, which held that merchant navy personnel must pay taxes in India. The tribunal ruled that any income received in India is taxable except in cases where there is a double taxation avoidance agreement (DTAA).
This has set a precedent where merchant navy professionals may have to pay taxes in the highest tax slab of 30% given their high earnings. A proposal also calls for allowing tax officials to demand taxes for the past six years.
The new rules will apply to Indian seafarers sailing under Indian or foreign flags.
Two seafarers’ associations -- Maritime Union of India (MUI) and National Union of Seafarers of India (NUSI) --are planning to challenge the tax tribunal's decision, the ET report said.
To complicate matters further, Indian tax authorities agreed to rewrite rules for seafarers working on Indian-flag ships to qualify them for non-resident status and end an anomaly that is cited by local fleet-owners as the main reason for an acute shortage of sailors to man their vessels. This was done after 24 years of demand from the shipping industry. Finance Minister Arun Jaitley had signed off the new rules in September 2014.
