Duty levy may hit buying plans of shipping companies

The acquisition plans of shipping companies may run into troubled waters, with the recent Union Budget proposing a levy of excise duty and corresponding additional duty of customs (ADC) on import of ships.

This has come at a time when prices of new assets have fallen substantially over the last two years, egging on shipping companies to put on fast track their buying plans.

Multiple taxations

Ship owners have taken it up with the Finance Ministry for a withdrawal of the levy on the ground that the industry is already burdened with multiple taxations.

In the Union Budget, the Finance Minister had proposed to withdraw the exemption of excise duty on 130 items “that are mainly in the nature of consumer goods”, in order to prepare the ground for transition to GST.

With import of ships being included in the list, ship owners will have to bear an additional about nine per cent as excise duty, corresponding ACD and Special ACD (at five per cent according to tariff and one per cent where no input credit has been availed). Another fall-out of this will be that the special additional Customs duty (SACD) exemption that was earlier available on import of ships will not be now available — this will mean an additional burden of four per cent.

“Even though new ships are coming at a lower price tag, the additional duty will certainly make acquisitions significantly costlier and even unviable. The industry may have to review its acquisition plans if this is not reversed,” an official of a shipping company said.

In fact, the day the Budget was presented in the Parliament, shipping companies were happy over the proposal granting exemption from customs duty for import of spares by ship owners for ship repairs.

But, after scanning the fine print, ship owners soon realised that the levy of excise duty and correspondent ACD more than negated the benefit of duty exemption on import of spares.

Uneven keel

The industry fears that the levy of the new duties could place it on an uneven keel with its overseas counterparts. It cites that even import of aircrafts into India enjoys full custom duty exemption.

SCI

Indeed, most shipping companies had lined up major expansion plans. Shipping Corporation of India (SCI), for instance, which owns nearly 35 per cent of India's flagged tonnage, plans to acquire 62 vessels in the Eleventh-Plan Period, having already on order 32 vessels.

Essar group

Similarly, the Ruias-controlled Essar Group is in the process of investing $1.1 billion to acquire 12 new vessels in the next two years, including two cape-size vessels that are joining the fleet this fiscal.

It has on order six new mini cape size vessels and six supra-max dry bulk carriers that are expected to be delivered from next fiscal.

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