The Hindu Business Line : Efforts on to introduce new tonnage-based tax regime

THE Shipping and Surface Transport Minister, Mr T.R. Baalu, met the Finance Minister, Mr P. Chidambaram, on Tuesday to convince him about the need for the introduction of a new tonnage based tax regime for the Indian shipping industry as an alternative to the normal corporate tax structure.

The meeting which was described as a "pre-budget consultation" between the two Ministers assumes significance as the former Finance Minister, Mr Jaswant Singh, had in his interim budget speech on February 3 this year given a "commitment" that a tonnage tax scheme should be considered to provide a level-playing field so that Indian shipping becomes globally competitive.

During the 45-minute meeting, Mr Baalu brought to the notice of the Finance Minister a host of issues relating to the Shipping and Road Transport & Highways sectors including the tonnage tax, customs duty on ships, rationalisation of seafarers taxation, among others, Government sources said.

A six-member committee set up by the Finance Ministry has finalised a draft Bill on implementing the new tonnage tax system for the domestic shipping industry. The tonnage tax legislation is envisaged as part of the Income Tax Act, 1961 and a new Section along with a new Schedule has been proposed.

For the purpose of calculating the tonnage tax, the panel has opted for converting the shipping tonnage into a notional profit and levying a tonnage tax thereon by applying the prevailing corporate tax rates. In other words, the method of calculation of tonnage tax will be based on a notional income schedule per day per net registered tonnage (NRT) of the ship worked out by the Central Board of Direct Taxes (CBDT) at the time of enactment of the Bill, the sources said.

The income of each qualifying ship for the previous year will be computed by multiplying the daily income by the number of days in the previous year or if the ship was operated by the owner for only a part of the previous year, the number of days in that part of the previous year.

The aggregate of the income of all the qualifying ships operated by the company thus worked out will be the company's tonnage tax income for that previous year on which the prevailing corporate tax rates will be applied to arrive at the tonnage tax levy.

The tonnage tax liability of Indian ship owners is expected to be in the range of 1-2 per cent to bring them on par with 85-90 per cent of the world shipping tonnage that pays a tonnage tax of less than 2 per cent.

The draft Bill also incorporates the concept of creating a separate reserve account made up of a minimum of 20 per cent of the annual book profits computed as per the Companies Act to be utilised for the sole purpose of acquiring ships within a period of 8 years.

According to the Shipping Secretary, Mr D T Joseph, the Government should introduce tonnage tax if Indian shipping has to grow. ``Currently, less than 7 million Gross Registered Tonnage (GRT) are under Indian flag. It should go up which means more ships and more tonnage,'' he said.

The Former Finance Minister had proposed the introduction of tonnage tax. ``We only hope that the new Government make that a reality so that the shipping sector benefits from it,'' he stated.