Shippers see big gains from new tax

INTERIM BUDGET & THE ECONOMY/SHIPPING

Finance Minister Jaswant Singh's statement that a tonnage tax scheme will be studied by the government has been welcomed by the shipping industry.

If introduced, the tax proposal has far reaching implications for the shipping industry because it will cause huge tax savings, which can be ploughed back for fleet expansion.

"To make Indian shipping competitive, a tonnage tax scheme with notional income at a fixed rate is to be considered," Singh said in his Interim Budget speech.

Indian shipping companies may end up paying a maximum of 2 per cent tax, if the proposal is implemented. At present, shipping companies pay a 36.5 per cent corporate tax or a minimum alternate tax of 7.5 per cent.

"I see this as a commitment by the government, which seems to have accepted the demand of the shipping industry regarding the tonnage tax," said PK Srivastava, chairman and managing director of the Shipping Corporation of India, and president of the Indian National Shipowners Association.

"It is a positive step and is aimed at making the Indian shipping industry globally competitive," says a spokesperson for the Great Eastern Shipping Company.

"The implementation of this step by the government will attract more investments in the Indian shipping industry," added Sanjay Mehta, managing director of Essar Shipping.

The Indian shipping industry has been clamouring for the introduction of the tonnage tax regime on the ground that this will give it a level playing field. Globally, companies which own about 85 per cent of the fleet pay either no tax or at a maximum of 2 per cent tax.

This is either due to flying flags of convenience or by paying tonnage tax.

Tonnage tax is the tax computed on the notional income of a shipping company based on the weight of its fleet. This tax will have to be paid irrespective of whether the shipping company makes profits or losses.

The report says that this tax saving could have been leveraged with a debt of $324.57 million to add 31 new ships to the Indian fleet. The panel has assumed that the cost of each ship is $15 million.