The Hindu Business Line : Industry seeks further tweaking of tonnage tax

Apart from seeking a clearer picture on what kind of vessels qualify for tonnage tax, the industry wants other clarifications too. These include the restriction on percentage of tonnage chartered, taxation of interest on reserve funds, and bringing book profits on sale of vessels under tonnage tax.

AS the euphoria over the introduction of a tonnage tax regime for the shipping sector settles down, the industry is beginning to realise that the fine-print needs to be clarified and altered a trifle in order to sharpen the efficacy of the scheme. Industry representatives are in the process of taking up certain issues related to the new tax structure with the Shipping Ministry, according to industry sources.

Industry representatives feel that first, the definition of a ship that qualifies for tonnage tax needs clarification.

It is felt that the scheme is unclear whether charter vessels would qualify for the new tax regime, while dredgers, which used to enjoy same benefits as ships under the earlier tax structure, have been disqualified for the scheme. "With most shipping companies chartering vessels, we feel that such vessels should also be qualified for tonnage tax," a representative said.

In this context, the smaller companies point out that the restriction on charter of vessels in excess of 49 per cent of the owned tonnage under the new regime would affect their operations. As per the restriction, the companies could charter up to 49 per cent of their respective tonnages and if this is exceeded, the companies would not be qualified for tonnage tax during that year.

Further, if any company chartered in excess of 49 per cent of its owned tonnage for two consecutive years, it would be debarred from the purview of tonnage tax and would have to pay corporate tax of 35 per cent.

While the big shipping companies, including Shipping Corporation of India (SCI), which charter vessels will not be affected by this condition, as their own tonnage is huge, smaller companies are finding it difficult to keep their share of chartering below 49 per cent of their owned tonnage.

"A few of these companies own barely three to four ships and depend on charter vessels to a great extent. What these companies are now seeking is that this restriction be put off at least for a period of one year, so that the existing charter contracts could be fulfilled. Now, these companies will either have to cancel the existing charter contracts to remain in the tonnage tax regime, which would invite legal disputes, or forego tonnage tax for the next ten years," according to the industry representative. Another change that the industry may seek is in regard to the mandatory transfer of 20 per cent of the company's book profit every year to a reserve fund, which should be used solely for the purpose of ship acquisition within a period of eight years.

A section of the industry is not clear whether the interest accrued on the reserve fund would come under the purview of tonnage tax.

"While we are ready to transfer 20 per cent of our profits to the fund, what happens to the interest that this money will generate within the grace period of eight years? We feel that this interest accrual should also come under the purview of tonnage tax," the representative said. The third issue is that the book profit on sale of a vessel was not included in tonnage tax and this would attract the hefty corporate tax rate.

Industry sources felt that as sale of a vessel was also a part of income of the company, this should be brought under tonnage tax.

The industry is also unsure now whether introduction of tonnage tax would actually result in flow of FDI into the sector. FDI, though permitted in this sector since the last four years or so, has been slow in coming, given the lack of a level playing field.

But, analysts argue, introduction of tonnage tax may not exactly open the floodgates for FDI. "First, at present, about 74 per cent of Indian cargo is carried by foreign-flagged vessels as it is and, surely, the remaining 26 per cent is not incentive enough for a foreign investor to step in. Then, shipping is such an industry that you need not be actually investing in a particularly country to do business there, unlike in other sectors, such as FMCG," according to an analyst.

More Stories on : Shipping | Taxation | Budget

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

Stories in this Section
A mixed week for aviation sector

Tax advisor for airports upgrade project mooted

IA non-metro scheme

Air Deccan earns Rs 552-cr revenue

International terminal at Kochi — Bunkering benefits

Industry seeks further tweaking of tonnage tax

Competition from Chennai, Kochi — Will Tuticorin get `boxed' out?

Railway official meets Antony