In February this year, Singapore’s RBB Ship Chartering Ltd became the first maritime player to set up a ship-leasing business at the International Financial Services Centre (IFSC) at GIFT City in Gandhinagar, Gujarat.

The IFSC authority (IFSCA) granted a provisional licence to RSCPL (IFSC) Ltd, a 100 per cent subsidiary of RBB Singapore to start commercial operations this month.

Another leading shipping player, Kolkata-based Ripley is entering the GIFT IFSC for ship leasing and ship owning business through its Dubai arm.

The flurry of activity around a niche area of ship leasing is no ordinary development. This, according to sector experts, will unlock massive value for the shipping sector as the players start moving their operations from overseas to Indian shores eyeing cost advantage and operational efficiency.

What is ship-leasing?

Ship finance or leasing is to fund ships with the asset/vessel as collateral. Leasing is gaining popularity because it is a way of funding ships. Most of the Indian shipping community is full of operators who don’t own vessels as it is a low-capital entry into shipping. Therefore ship-leasing allows them to stay in the shipping business without owning vessels.

According to Petrofin Research, in 2021 the total global ship finance exposure including leasing and all other forms of finance amounted to around $500 billion.

According to the Ministry of Shipping, about 95 per cent of India’s goods trade by volume and 70 per cent by the value is done through maritime transport. Despite having a 7,517-km coastline, India still lags behind the smaller hubs that are global leaders in ship financing. They are Singapore, Hamburg, Rotterdam, Hong Kong and London.

Historically, Indian shipowners and operators have preferred international maritime centres in the vicinity to operate. This is mainly due to high cost of financing, lack of exposure to maritime finance and insurance and prohibitive tax regimes within the domestic regime in India.

But in January 2022, IFSCA notified ‘ship lease’ as a financial product unlocking new opportunities for enabling financial and operational leasing activities.

Ship leasing tax frameworks at IFSC
Low tax structure
Ten-year tax holiday out of first 15 years
No tonnage tax
No capital gains tax
No minimum alternate tax under new tax regime
No input GST on services received from Indian or NRI vendors
No GST for services provided to other IFSC units
Free transaction for money movement outside FEMA purview
Key advantages

Speaking to businessline, Amit Oza, Director, Astramar Shipping said, “UAE and Singapore are getting very expensive, whereas there are human and cost elements of advantages at GIFT-IFSC. Proximity to the large growing Indian market, availability of skilled and trained manpower and lower costs are three key advantages.”

In 2021, IFSCA had constituted a Committee on Development of Avenues for Ship Acquisition, Financing and Leasing Activities from IFSC in India. This Committee developed a ship-owning and financing model, with the help of Price Waterhouse & Co LLP.

Oza, who was part of the committee said, “With the new framework, more Indian shipping companies abroad will return to India. We will see the potential of the Indian shipping sector realised with commencement of such operations,” he said.

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