The Hindu Business Line : Advantage tonnage tax — Corporates may set shipping divisions adrift

Under the tonnage tax scheme, shipping companies are taxed on the basis of their tonnage and not on the incomes earned by them. The tonnage tax will help Indian shipping companies compete on a global platform where close to 90 per cent of the tonnage operate on a very low level of tax in the range of 1-2 per cent.

CORPORATES with a shipping division may now be tempted to hive them off into a separate entity to take advantage of the newly-introduced tonnage tax.

State-run ONGC, which has the largest fleet of off-shore supply vessels, is already working on a separate shipping subsidiary to operate and manage its shipping assets. "We are working on a separate shipping company to secure the benefits of tonnage tax and for better efficiency," the ONGC Chairman and Managing Director, Mr Subir Raha, told Business Line.

Shipping industry sources reckon that entities such as Gujarat Ambuja, Vikram Ispat, and Century, which have shipping divisions, may now be inclined to set up separate shipping companies to save on taxes.

While the deadline for existing qualifying shipping companies to opt for the tonnage tax regime expired on December 31, others are "waiting and watching" to gauge the benefits before de-merging their shipping divisions into separate companies and applying for the new scheme. "The December 31 deadline was for existing companies. Others have no such deadline; they can apply for the new tax scheme anytime," an industry official said.

Under the tonnage tax scheme, shipping companies are taxed on the basis of their tonnage and not on the incomes earned by them. The method of calculation of tonnage tax will be based on the notional income schedule per day per net registered tonnes (NRT) of the ship fixed out by the Central Board of Direct Taxes.

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 company for only part of the previous year, then 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 corporate tax rates will be applied to arrive at the tonnage tax levy.

The tonnage tax will help Indian shipping companies compete on a global platform where close to 90 per cent of the tonnage operate on a very low level of tax in the range of 1-2 per cent.

ONGC has proposed a special purpose vehicle, ONGC Peripherals Ltd (OpaL), to manage, operate and maintain its offshore supply vessels.

ONGC, the most profitable of all Indian oil companies, owns and operates 31 supply vessels. It also charters drilling rigs apart from the multi-purpose supply vessels from the state-run Shipping Corporation of India (SCI) and private sector companies to reach equipment to its offshore platforms, taking the number of vessels to 56.

According to the proposal under consideration of the management, ONGC is to hold 26 per cent in the venture, while SCI and Mazagaon Docks Ltd would have around 15 per cent each.

The company also planned to include private sector companies such as Pipavav Port Ltd, Kakinanda Deep Water Port, and Great Eastern Shipping Company Ltd with 13 per cent stake each while the balance equity would be held by the financial institutions.

ONGC has planned the SPV in such a way that government-owned companies owned around 49 per cent stake in the joint venture with private sector accounting for a majority 51 per cent to help impart professionalism in managing the vessels, an ONGC official explained.

SCI to buy six handymax

bulk carriers

Meanwhile, SCI has flagged-off a proposal to acquire six new handymax bulk carriers of 53,000 DWT (dead weight tonnes) each to replace similar vessels that are due for scrapping soon.

The purchase proposal was discussed at the SCI board meeting in the last week of December. According to a Shipping Ministry official, "After deliberations, the board directed the SCI management to re-work the acquisition proposal on various parameters and submit it afresh for approval." .

According to officials, the plan submitted by the management was not in consonance with the Government stipulation on achieving an internal rate of return (IRR) of 12 per cent for ship acquisitions given the very high new building prices prevailing globally for such vessels.

This was one of the main reasons that prompted the board to direct the management to re-work the proposal.

After the board clears the proposal, it will be submitted to the Public Investment Board (PIB) and the Cabinet Committee on Economic Affairs for approval. "By the time these vessels are delivered, the existing handymax carriers will become old for scrapping," the official said.

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

Stories in this Section
Advantage tonnage tax — Corporates may set shipping divisions adrift

Bunkering to fuel growth for oil firms

`Convincing trade of rail's reliability, cost-effectiveness was tough' -- Mr Manoj Singh, CEO, Himalayan Terminals Pvt Ltd., Birgunj, Nepal