The Hindu Business Line : Foreign shipping lines bid to cash in on tonnage tax

SOME foreign shipping lines operating in the country are planning to bring their ships under the Indian flag to take advantage of the newly introduced tonnage tax.

The tonnage tax (TT), announced by the UPA Government in its maiden Budget, will come into effect from April 2005. The tax outgo under TT is said to be much lower as compared to the existing corporate tax in the country. Besides, as 100 per cent FDI is allowed in shipping, foreign lines can set up wholly owned companies in India to bring their ships into the Indian registry.

Some NRI-owned shipping companies in Hong Kong and other far eastern countries are understood to be thinking of bringing their vessels back under the Indian flag. Interestingly, some of these vessels are already operating in India under the BBCD scheme.

Shipping company officials here say that several foreign shipping lines are now operating coastal services in India after obtaining NOC from Indian maritime authorities.

In the future, these operators may find it difficult to get NOC as the Government is thinking of tightening the Cabotage rules restricting foreign lines operating coastal services. This may also force foreign lines to bring at least part of their fleet operating in India under the Indian flag.

Some of these companies are also seeking the membership of the Indian National Shipowners Association (INSA) — the apex industry body.

Unlike other industry associations, the INSA has been functioning as a closed club with membership being restricted strictly to domestic lines.

The INSA has a received request for membership from the Indian subsidiary of a foreign company operating offshore supply vessels in India. The INSA board will be meeting shortly to consider the request, said an INSA director.

Analysts and industry observers say that the introduction of tonnage tax has unleashed an encouraging trend of increased Indian tonnage.

Though several foreign lines have been operating services to and from India, none of them were keen to get their ships registered under the Indian flag earlier. Even after permitting 100 per cent FDI in shipping, hardly any foreign lines made equity investments in India. This was said to be mainly because of the high level of taxation and rigid manning norms in India.

The situation has changed with the Government decision to introduce tonnage tax, said a leading shipping company official.

Meanwhile, all the leading Indian shipping companies are expected to opt for tonnage tax. They are supposed to inform their decision to the Government before December 31.