The Hindu Business Line : New tonnage tax regime — Shipping Ministry takes hard stand on fleet acquisition clause

Industry sources say the Ministry has adopted a hard stand on the implementation of the clause in the tonnage tax that makes it mandatory for every company under this regime to plough back 20 per cent of its profits to build up a reserve for fleet acquisition.

The Government had introduced this clause, while providing a level playing field to the domestic industry by introducing the tonnage tax, with the cardinal objective of ensuring that Indian tonnage gets a boost.

The Ministry is keen that the industry shores up Indian tonnage, especially as Indian flagged vessels carry hardly 15 per cent of the country's cargoes.

The sources said the Ministry has asked all shipping companies that adopted the new tax regime, which had drastically reduced their tax burden, to furnish details about their profits and the allocation made for ship acquisition.

India had till recently lagged behind in the development of a cargo fleet compared to other countries. In the last one year, after the tonnage tax regime was put in place, the tonnage has, however, shot up to touch 8 million gross tonnage.

Between 1992 and 2003, the country's fleet growth was less than seven per cent, while that of Singapore and China was 133 per cent and 33 per cent respectively.

During this period, the overall percentage share of Indian lines in India's overseas trade declined from 35 per cent to 15 per cent.

Going by the current age profile of the Indian fleet, the over 20-year-old vessels account for 50 per cent (or 42 vessels) in the dry bulk sector and 44 per cent (42 vessels) in the oil tanker segment.

"This means that at current prices the cost of just replacement of this 20-year-old fleet will be over $2 billion by 2009. This means India requires huge investments in the shipping sector," a shipping analyst said.

It was thought that the tonnage tax clause relating to mandatory allocation of 20 per cent of profits for acquisition could go a long way in helping the industry mop up the requirement investment.

The shipping industry estimates that the 20-per cent allocation of its profits would amount to about Rs 625 crore every year, if strictly implemented.

Going by the industry's general capital expenditure yardstick of a debt-equity ratio of 25: 75, the total resources the companies can mop up in one year for fleet acquisition will come to about Rs 3,000 crore.

"In other words, the 20-per cent clause alone is sufficient to help the industry raise significant amounts to buy new ships," according to the analyst.

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