Shipping cos may flag out to zero-tax S'pore

A dozen taxes to be blamed for the move.

Burdened with a plethora of taxes, Indian shipping companies are planning to flag out their vessels to zero-tax Singapore and a few other countries.

Sources close to the development said that companies like the Essar Shipping, Varun Shipping and the Tolani Shipping have already set up subsidiaries in Singapore, Bermuda and Panama.

"More players in the shipping industry will be encouraged to acquire vessels through their overseas subsidiaries and will flag out their vessels to Singapore," they said.

"Though the government has extended the tonnage tax to the industry, 12 other taxes are nullifying its positive impact," industry sources pointed out. At a time when the freight rates are going down, the tax outgo is denting the competitiveness of the domestic shipping companies, they added.

The list of taxes paid by shipping companies includes service tax, fringe benefit tax, corporate income tax, MAT on profit on sale of vessel, tax on dividend declared and paid, wealth tax, customs duty on spares and consumables, reverse service tax on services received abroad, tax on investment paid to foreign lenders, tax on seafarers' salary, lease tax on chartered vessels and sales tax and VAT.

Mercator Lines Joint Managing Director Atul J Agarwal said the company was seriously planning to flag out some of its vessels to subsidiary Mercator Lines Singapore Pte Ltd. Moreover, future acquisitions could be through the subsidiary route in the wake of current tax structure, added Agarwal.

Varun Shipping Company is set to acquire a liquefied petroleum gas (LPG)carrier through its wholly-owned subsidiary in Singapore, VSC International Pte Ltd.

A senior Varun Shipping executive however said that the reasons for acquiring the vessel through subsidiary route was not the present tax structure.

"At the moment we have no plans to flag out our vessels from India. However, we are optimistic that government will rationalise the tax structure to extend a level playing field to Indian shipping industry at par with international players," he said.

The industry pays fringe benefit tax for it's crew travel at 6.6 per cent to 6.7 per cent and service tax at 10.2 per cent for the services rendered abroad.

"Shipping being a international industry, it has to take various services abroad. Moreover, the crew travel to ships should not be treated as entertainment travel," sources pointed out.

Singapore would be a natural destinations for shipping companies as there is no tax. Singapore is, in fact, offering upfront cash subsidy to companies to set up subsidiaries which will give a fillip to the economy. The UK, Germany, Ireland and Australia are also wooing Indian shipping companies.

TAXES BY THE DOZEN

Corporate income tax

Service tax

Fringe benefit tax

MAT on profit on sale of vessel

Sales tax

Tax on dividend declared and paid

Wealth tax

Customs duty on spares and consumables

Reverse service tax on services received abroad

Tax on investment paid to foreign lenders

Tax on seafarers' salary

Lease tax on chartered vessels