The Hindu Business Line : Shipping Ministry for extending tonnage tax option to dredgers

WHILE the Shipping Ministry is happy that the Union Budget had accommodated its plea for introduction of tonnage tax, it is "shocked" that dredgers have been left out of the scheme. The Ministry is understandably unhappy over this move, as it will deal a significant blow to the bottomline of one of its biggest profit-making companies — Dredging Corporation of India (DCI).

Informed sources said the Shipping Ministry had initiated a move to take up with the Finance Ministry the issue of bringing DCI under the tonnage tax regime, especially as the company had been enjoying the same benefits given to the shipping companies under the earlier corporate tax regime.

DCI, which successfully came out with a public offering of 56 lakh shares in February, has been a major profit earning company for the Shipping Ministry — last fiscal it clocked a profit of about Rs 160 crore on a turnover of Rs 550 crore.

The company, which has a fleet of 12 dredgers, had been enjoying the benefits under Section 33 AC of the Income Tax Act, 1961, that was given to shipping companies from 2002-03. The 33 AC benefit had substantially brought down the effective corporate tax liability of these companies from 35 per cent to about 7.5 per cent.

However, the Finance Minister, Mr P. Chidambaram, in his Union Budget, had made it clear that dredgers would not qualify to come under the tonnage tax regime, along with other crafts such as fishing vessels and ferry boats. And with the benefits under Section 33 AC having been withdrawn after the introduction of tonnage tax, DCI has been literally left out in the cold — the company can neither benefit from the new tax regime, nor get the earlier cushion of Section 33 AC. "DCI has to now shell out a hefty corporate tax of 35 per cent, which will have a significant and direct impact on its bottom line," a source close to the Shipping Ministry said.

As the Budget implication on DCI sank down in the market, the company's stock reflected a marginal fall from Rs 425 a week before the Budget to Rs 408 after it closed on Tuesday.

When contacted, Mr Neerav Kumar Gupta, DCI Chairman and Managing Director, admitted that the non-inclusion of dredgers under tonnage tax had come as a "shock" and that this would make a significant dent on the company's bottomline. "Our tax liability last year was about Rs 10 crore. But now with the benefits under Section 33 AC having been withdrawn and non-inclusion of dredgers under tonnage tax, our tax liability could go up to Rs 50 crore. Dredging companies in most other countries have a tax liability of no more than 2 per cent to 3 per cent," he pointed out.

What has shocked DCI more is that when it was being treated on par with shipping companies for the benefits under the earlier tax regime, how could it be abruptly isolated under the new tax structure. "Logically, if dredgers do not qualify for tonnage tax, at least DCI should continue to get the earlier benefits under Section 33 AC," a Ministry source argued.

According to the source, this development could upset the fleet expansion programme that DCI had drawn up to counter competition from foreign dredging companies, which have been of late threatening its earlier monopoly status. The company has initiated steps to acquire two new dredgers by 2006.