The Hindu Business Line : Ship owners yet to get nod for new tonnage tax scheme

THE newly introduced tonnage tax scheme for the shipping industry is going through intense birth pangs. Some of the ship owners are yet to get approval from the tax authorities even two months after applying for the new regime, while the `training obligations' under the scheme have come into force.

As per the new Chapter XII-G in the Income Tax Act pertaining to tonnage tax for shipping companies, the I-T authorities have to pass an order either granting or refusing approval to the option for tonnage tax within a month after receiving applications from ship owners.

However, State-run Shipping Corporation of India (SCI) which had submitted an application opting for the tonnage tax scheme in the last week of November is yet to get an intimation from tax authorities on whether it has been granted approval or not, a senior SCI official told Business Line.

Similarly, Varun Shipping, Sanmar Shipping, West Asia Maritime and Apeejay Surendra are a few of the prominent owners waiting for a response from the tax authorities. "We have reminded the tax authorities twice for a response to our application for tonnage tax, but to no effect," the official said.

Almost all existing qualifying shipping companies had submitted applications opting for the new tax regime between September 30 and December 31, 2004. Based on the applications, the tax authorities have, so far, granted approval to Great Eastern Shipping, Essar Shipping , Mercator Lines and Tolani Shipping, among a few others.

In fact, the case of Kolkata-based South-East Asia Marine Engineering and Construction Ltd (SEAMAC) is even curious. The tax authorities have informed the company that it has been granted approval to opt for tonnage tax for five years even though the law clearly says that a company exercising the option of tonnage tax will have to remain locked under the scheme for 10 years.

"The option for tonnage tax scheme is being granted to SEAMAC for a period of five years with effect from December 20, 2004 to December 19, 2009," says an order issued by Mr S.N. Singh, Additional Commissioner of Income Tax, Range 3, Kolkata.

Shipping industry sources said once the option for tonnage tax is granted by the tax authorities, it is deemed to be for the entire 10-year period unless an entity ceases to become eligible due to default or for non-compliance of provisions. "But there cannot be a conditional period of option," said an industry expert.

Ship owners who have so far not got approval from the tax authorities are caught between the devil and the deep sea. As per the Act, applications opting for tonnage tax are deemed to have been accepted and granted approval unless otherwise given in writing. But owners are still waiting for a final word from the authorities.

In the meanwhile, the training obligations for companies opting for the scheme have started from January 1. "In order to overcome the practical problems, we are paying the training fees in advance," an SCI official said.

The confusion clearly demonstrates that the tax authorities are not "well-versed" with the latest budget provisions, says the expert. "If the tax authorities don't go into the provisions and understand them, how do the shipping companies comply with the provisions. There is no provisions in law to penalise the tax authorities for non-compliance of stated provisions," he said.

Meanwhile, the Finance Ministry is yet to issue the much-awaited circulars pertaining to calculation of net tonnage for in-chartering of ships including slot chartering of container ships, space chartering of bulk carriers as well as audit forms.

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