The Hindu Business Line : Shipping stocks float on tonnage tax plan

SHIPPING stocks floated up on the major bourses on Tuesday largely because of the announcement by the Finance Minister that corporate tax for shipping companies would be migrating to an asset-based system (registered tonnage) from a profit-based one.

According to industry sources, if the tonnage tax concept is implemented, it will create significant savings on the tax front. "For example, for GE Shipping, which has been paying MAT, the effective tax rate was around 14 per cent of the PBT in the existing system. This is likely to come down to 2 to 3 per cent," an industry insider explained.

However, as implementation of tonnage tax is subject to amending the Income Tax Act, the benefits from the changeover for a shipping company can possibly be derived at the earliest in the second quarter of the next fiscal.

For SCI, however, the proposed tonnage tax may not create the kind of savings as GE Shipping. "This is because SCI has aggressively been building reserves to take advantage of I-T exemption under section 33 a(c). The exemption, which encourages investments, is supposed to remain till 2005," a tax expert said.

Even though the changeover was expected in the stock market and already factored it to an extent into the stock prices of the shipping companies, prospect of savings in future coupled with firm freight rates buoyed sentiment for the shipping counters.

SCI moved up 2.5 per cent, GE Shipping 2.8 per cent and Varun Sipping 4.9 per cent. Traded volumes also moved up following the announcement.

According to Mr Vikas Jain of Anagram Stockbroking, after actual introduction of tonnage tax, the shipping outfits, which currently avail themselves of section 33, subsection a(c) exemptions and pay MAT of around 8 to 10 per cent, are likely to save at least by about 6 to 8 percentage tax points.

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