Tonnage tax may come with a catch

In lieu of tax, shippers may have to train maritime graduates

Tonnage tax, when finally introduced by the government, may come with a rider if the proposals of a panel, set up to pen a draft legislation for the tax, are accepted.

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

The panel has recommended that in lieu of grant of tonnage tax, shipping companies will have to train fresh graduates of various maritime institutes in the country.

The panel comprises representatives from the ministries of shipping and finance, the Indian National Shipowners Association and the directorate general of shipping. There are about 130 maritime training institutes in the country.

"The idea behind the recommendation is that since the industry will gain substantially, the benefits should be passed on to others as well," said G S Shane, director-general of shipping.

The recommendations assume significance as the finance minister has said in his Budget speech, while presenting the vote on account last week, that the introduction of a tonnage tax should be considered.

The industry expects the tax to be introduced after a new government takes charge after the general elections.

The tax, if finally introduced, has the potential to change the dynamics of the shipping industry, resulting in a substantial fleet acquisition. The industry has been clamouring for tonnage tax on the ground that it will it a level playing field.

Worldwide, shipping companies, which own about 85 per cent of the fleet pay either no tax or at a maximum of 2 per cent. This is either owing to flying flags of convenience or by paying tonnage tax.

The industry argues that such a system will not only result in substantial tax savings but also fleet addition. It says the report submitted in January, 2002 by a committee, headed by former advisor to the finance ministry and now deputy governor of the Reserve Bank of India, Rakesh Mohan, has estimated that domestic shipping industry paid taxes of $171.24 million from 1996-97 to 2000-01.

On the other hand, it says that had tonnage tax been in place it would have resulted in a tax outgo of only $32.14 million during in the same period, a saving of $139.10 million.