Duty-free import of spare parts for shipping cos

| | Updated on: Feb 28, 2011

Mr Pranab Mukherjee has granted a longstanding demand of Indian shipping companies; duty-free import of spare parts for their ship. So far, only shipyards are allowed duty-free import of spares.

Who benefits?

This will help small shipping companies, particularly coastal service operators who were depending shipyards for spare parts, said Mr S.Hajra, Chairman, Shipping Corporation of India. For companies like SCI, which is mainly engaged in the ocean trade, this may not have much impact. But it will help coastal operators.

Ship repair yards normally charge a commission on imported spare parts besides their service charges, said another shipping company official.

As such there is not enough repair facility in India. While yards are allowed to import spare parts duty-free same facility was not available to ship owners.

Coastal shipping service operators will also benefit from the abatement in service tax . According to Mr Samir Kanabar, Director, Ernst & Young, though the abatement granted for shipping services is not at par with road transportation, the same will make shipping competitive in terms of cost.

However, Mr K.M. Sheth, Executive Chairman, Great Eastern Shipping said the increase in MAT will affect the bottom lines of shipping companies. Generally, tonnage tax is applicable to shipping companies. However, income from sale of ships will not be covered under tonnage tax. Therefore, shipping lines will be subject to the increase in MAT.

Mr AR Ramakrishnan, Director, Essar Shipping Ports & Logistics, said the enhanced export duty on iron ore may impact freights rates in the bulk sector. Though this will also be determined by overall demand for iron ore from China, if there is a fall in exports from India to China, bulker freight rates on this sector may be impacted.

According to Mr Ramakrishnan, the focus on infrastructure spending and increased assistance through IIFCL should be a positive for the infrastructure and ports sectors.

The special withholding tax rate of five per cent on notified special purpose infrastructure funds will also be a positive.

Tax-free bond

The Budget has allowed funds to be raised through issue of tax-free bonds for the sector. Out of the Rs 30,000 crore tax-free bonds proposed for the infrastructure sector, Rs 5,000 crores are to be allotted to ports.

This is probably the first time that ports are allowed to raise funds through tax-free bonds. However, it is not clear that private sector ports are eligible to adopt this route.

A shipping Ministry official said the tax-free bonds will be issued by the dedicated financial institution proposed in the vision documents unveiled by the Ministry recently. So, the government will have to first set up the proposed financial institution, which will take time, said a port official.

Published on March 01, 2011

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