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i-maritime Newsletter

Shipping: ‘High taxes, rigid rules keep foreign investors away' - 2011-09-28

The Department of Economic Affairs has come out with suggestions to rationalise the tax regime to make the Indian shipping sector more competitive.
A working paper on „Policy for India's Service Sector', prepared by the Department, has pointed out that Indian shipping is currently subjected to 12 direct/indirect taxes over and above the tonnage tax, thereby increasing the effective tax rate, of around 2 per cent under the tonnage regime, to around 9 per cent.
These taxes include corporate tax on interest and other income, MAT (Minimum Alternative Tax) on profit on sale of vessels, dividend distribution tax, and seafarers' taxation cost to employers.
Though 100 per cent FDI was allowed since the 1990s, no worthwhile foreign investment had taken place in the Indian shipping sector due to high taxes and rigid regulations, such as manning norms in India, the paper points out.
Though Indian shipping has benefited from the introduction of tonnage tax, the value of Indian flag has gradually diminished and even Indian owners are increasingly opting to own vessels outside India to pay virtually zero tax, employ on-board personnel of any nationality and exploit India's booming cargo base.
With the overall share of Indian ships carrying Indian cargo falling below 12 per cent from as high as 40 per cent a couple of decades ago and the imminent need to scrap around 40 per cent of existing shipping capacity due to IMO regulation, the strengthening of Indian fleet and funding assumes added importance, according to the paper.
It also suggests that the shipping requirements of public sector units be channelised and, thereby, ensure long-term contractual cargo support to Indian shipping companies. “Such long-term contracts would, in turn, enable Indian companies to invest in Indian flag tonnage and help in the growth of the Indian fleet,” says the paper.

Considering the growing energy demand and the consequent dependence on global energy markets, there is an urgent need to own and develop a “national core fleet” in the energy sector similar to the US Sea Lift Command, points out the paper.
Several foreign shipping lines have been operating services to and from India and the main reasons for lack of interest of Indian shipping companies are non-availability of level-playing field, indirect taxation and rigid regulations in India.

Source: Hindu Business Line