The Hindu Business Line : Sailing strong on shifting tax wind

THE Interim Budget presented by the Finance Minister, Mr Jaswant Singh, did not have major implications for Indian Industry or the investor. Some segments of the industry were, however, handed out some concessions. For instance, shipping, tourism and hospitality, sugar, capital goods and tea.Expectations of the salaried class and the investor were largely belied.

The proposal to shift to a tonnage-tax system would mean a lower tax outgo for companies such as Great Eastern Shipping, Shipping Corporation of India and Easer Shipping, to name a few. It would also place them on an even keel with fleet flagged out of other countries which have used the tonnage tax system.

For instance, Great Eastern Shipping had a tax outgo of about 12 per cent of pre-tax earnings in 2002-03. For FY 04, its provision for tax is about 7 per cent. As the tonnage tax levels are likely to be substantially lower, Great Eastern may be among the prime beneficiaries of a shift to tonnage tax as it is in the midst of a major fleet expansion programme.

This move may also help alter the stance of Indian shipping companies to flag their vessels out of other countries due to prevailing high tax structure in India. The magnitude of the effect may, however, become clear when the specifics are announced when the budget is unveiled after the elections.

The intent to move to a new basis for taxing shipping companies may help pep up valuation of their stocks. But gains may not be sizeable, as investors may prefer to wait for a clearer picture of the new tax system.