The Hindu Business Line : Shipping industry in a tizzy over service tax

AN Indian ship picking up a consignment in a foreign port and dropping it in another foreign port will now have to pay a service tax of 10.3 per cent on all services that the ship uses in foreign ports whenever it touches a home port.

Not only that, the ship will have to pay the same rate of tax on the port charges it incurs in a foreign port.

This is part of the Government's initiative to tighten the norms for payment of service tax, as put forth in its recent Union Budget.

The shipping industry is understandably in a tizzy, as the implications of the new norms are sinking in. "Considering that shipping is actually a global market, we (shipping companies) will be severely affected by this. The burden on us will more than neutralise the benefits we were given in the tonnage tax regime announced last year," a representative of the shipping industry said.

The Ministry of Shipping is likely to take up the issue with the Finance Ministry in the next few weeks, seeking exemption from payment of tax on services Indian ships hire at foreign ports. The Finance Ministry has recently clarified to the shipping industry that the new norms of service tax were in accordance with international practice.

It has clarified that "in view of the fact that some services are not tangible, the tax, which is usually collected from the service provider, will be collected by the recipient of the services. This is to ensure avoidance of double taxation or non-taxation, as these hurt domestic service providers."

The shipping industry feels that these norms could be justified for other sectors, it is not so in the case of the shipping market, as it is global in nature.

"Paying tax on the services we hire from the Indian ports is one thing, but paying the same tax on services at foreign ports is quite another. We have to routinely visit foreign ports as part of our operations," points out Mr Atul Aggarwal, Director of Mercator Lines.

In fact, shipping industry has to necessary avail a wide variety of services at foreign ports, including port services, dry-docking services and survey services.

"These services are part of our routine operations and paying a 10 per cent tax on these will blunt our competitive edge with foreign shipping companies, with whom we have to compete for cargoes.

The tax burden will be huge, especially as we do not have the benefit of price preference in the international shipping market," said another industry representative.

Only last year, the Indian shipping industry, after a prolonged campaign, could manage to get the tonnage tax regime, which had drastically reduced the tax burden from the earlier corporate tax regime.

"But this (new service tax norms) will put more burden on us than the earlier corporate tax regime. The industry will be badly affected and so will be our maritime trade," feels Mr S.K. Shahi, Chairman and Managing Director of SKS (Ship) Ltd.

That this should come at a time when the shipping industry is booming in the wake of a buoyant freight market has further caused panic in the industry.

It remains to be seen whether it can manage to wriggle out of the new service tax net that the Government has proposed to throw over the Indian industry.

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