The Hindu Business Line : Draft Maritime Policy

THE new Maritime Policy drafted by the Shipping Ministry seeks to address several structural issues concerning the sector such as taxation of Indian seafarers, service and withholding tax, among other things, to facilitate growth of Indian tonnage.

According to the draft policy, shipping companies would be given exemption from withholding tax on the interest component of the External Commercial Borrowings (ECBs) either by making a special general provision in the Income-Tax Act or given specific exemption under Section 10(15)(iv) of the I-T Act as they were given before June 1, 2001. "This will enable Indian owners make payment of interest to external lenders without any tax liability," the policy paper says.

The interest cost of ECBs for domestic shipowners has risen as lenders require payment of instalments and interest net of all Indian taxes. As a result, the entire burden of the withholding tax on the interest of the ECB falls on the domestic borrower. An Indian seafarer employed on a foreign-going ship would be exempt from income-tax provisions provided he remits $10,000 per annum into India.

Income from chartering of vessels, including bare-boat charter-cum-demise (BBCD) vessels, will be exempted from sales tax (value added tax)/royalty payments. The existing BBCD policy would also be reviewed with regard to issues concerning their flagging, manning and preference of BBCD vessels over foreign-flag vessels in respect of cargo allocation.

Considering that BBCD is a facilitative method of ship acquisition whenever the financing cost is either high or when ECBs are difficult to raise, a package of fiscal incentives will be designed to promote acquisition of additional tonnage through this route by the new as well as comparatively small investors.

A marine insurance policy will be adopted with attendant legislative provisions, if so required, to facilitate activities relating to maritime insurance and related activities in the country. The Government will also explore the possibility of having another International Register/Open Register to attract more tonnage keeping in view availability of 100 per cent FDI (foreign direct investment) in the sector. The Merchant Shipping Act will be amended for this purpose.

The new policy also seeks to continue with the existing system of free-on-board (f.o.b) imports by government departments/public sector undertakings and centralised shipping arrangements through the Transchart, functioning under the Shipping Ministry, along with cargo support to Indian ships.

It is also proposed to review and amend Section 21 of the Merchant Shipping Act for including the concept of " joint ownership of ship" with any foreign shipping company.

An LNG shipping policy that provides a regulatory environment for participation of Indian companies and transportation of LNG into the country only on Indian-flag tankers will be put in place. Moreover, the Ministry proposes to finalise an offshore shipping policy to promote Indian tonnage in offshore supply vessels (OSVs) as well as training and export of manpower with expertise in offshore shipping.

To promote coastal shipping in a big way, special dispensation in the form of special rates will be provided for coastal cargoes and coastal shipping. A Coastal Shipping Development Fund with a corpus of Rs 500 crore will be set up to provide finance on soft terms for acquisition of coastal vessels. Dues for coastal ships will be de-linked from those charged for foreign-going vessels.

Notwithstanding the provisions contained in the Customs Act, voyages on the coastal stretch will be exempted from the payment of lighthouse dues. This will be exempted even if on the coastal run, the ship is carrying containers or cargo picked up abroad, provided the voyage is from one Indian port to another.

Duty-free bunker will be made available for coastal vessels, as for foreign going vessels. Duty-free import of spares, stores and equipment related to coastal shipping would also be permitted.

The new policy seeks to offer concessional rates for this sector. Indian shipping companies will be encouraged to increase their tonnage of container ships to keep pace with the growth in containerised traffic globally.