The Hindu Business Line : Right time to put in place tonnage tax structure

INDIAN ship owners may not be ardent supporters of the BJP-led ruling National Democratic Alliance (NDA) at the Centre. But they want the NDA back in power. Their stakes are high. Over the past three-four years ship owners have invested heavily in educating those in the power on the importance of shipping for a maritime country like India.

It was not an easy task to convince successive ministers and bureaucrats — four ministers and equal number of secretaries — on the need to amend the tax laws governing shipping.

It took a couple of years of intensive lobbying to get an expert committee to study the scope for introducing tonnage tax in India, which is expected to bring down the tax burden of Indian shipping lines significantly.

The Committee, under the chairmanship of Rakesh Mohan, had recommended introduction of tonnage tax as an option for shipping companies in lieu of corporate tax. The Shipping Ministry had approved it immediately but it took more than a year for other ministries and tax departments to understand it.

Going by reports, a Bill on Tonnage Tax is almost ready and is likely to be introduced in the next session of Parliament. A change of guard at the Centre, ship owners think, at this moment, may prove too costly for them.

One consolation is that with freight market booming, shipping is back in the limelight. Shipping stocks are rising steadily on expectations of better earnings. The market appears to be heading for a more exciting phase.

If indications are anything to go by, India is attracting the attention of global players. Its sea-borne cargo is expected to grow at 20 per cent per annum. Some global container operators currently picking up cargoes from Indian ports are expected to set up own companies in India once the tonnage tax regime is in place.

Now 100 per cent FDI is allowed in shipping. Some international operators are understood to have started exploring the possibility of shifting their administrative base in India.

The idea is that they can own a small fleet under the Indian flag but can manage their entire global feet from India. Management talent is available here, perhaps at the lowest cost — the BPO advantage in shipping!

Besides, the global perspective on India is changing. International rating agencies have started upgrading India's rating. Last week, Moody's Investor Service upgraded the country's sovereign foreign currency rating to investment grade.

The country's forex reserves have crossed $100 billion. Indian currency is steadily strengthening against the US dollar, despite the rupee being made almost fully convertible through several measures announced recently. The economy is set to grow over eight per cent per annum. The combined `feel-good factor' of all these is expected to attract more investments to India.

With relaxation on External Commercial Borrowings norms, funds for ship acquisition can be raised at a much lower cost now. Indian companies have already started taking advantage of the current positive environment to add tonnage. This is a good sign for the industry. In fact, it is the right time for shipping firms to tap the equity market.

On the infrastructure front, particularly ports, there has been noticeable improvement.

Private competition is forcing public sector ports to perform better. As someone put it, `perform or perish' will be the only option for the government-owned major ports.

So, even in the unlikely event of a change of guard at the Centre, ship owners need not worry.

Given the current environment, it will not be possible for any new government to reverse the reform process. And tonnage tax needs to be viewed as a progressive tax structure.

More Stories on : Shipping | Taxation | On the move

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
IA slashes Gulf fares

Demand for budget airlines

Alumina: Logistic constraints and forward selling

SCI gets Govt nod for fleet expansion

Container transhipment terminal — `Vizhinjam has edge, fits the bill better'

Right time to put in place tonnage tax structure

New Dredging Policy: Competitive thrust