The two-day India Shipping Summit
is underway in Mumbai as I write this (see www.indiashippingsummit.com) and we have seen a great deal of suggestions coming
from various quarters of the industry.
Two issues dominate the summit, one the declining share of Indian ships
in national cargo and two, relaxing cabotage rules to allow foreign carriers
operate on coastal waters. I have
expressed my views on the second subject in earlier posts in this blog. Let me today address the first. I have already written about FDI in civil
aviation and how it will benefit India (see http://sunriseacademyonline.blogspot.in/2012/04/fdi-in-civil-aviation-how-it-will-help_28.html).
To begin with the Central Government must ease
the fiscal burden on Indian shipping companies in line with what it is in the
developed markets. It is only if the
government extends policy support will Indian shipping lines be able and
willing to acquire additional tonnage.
The nation’s annual freight spend is $ 40 billion and the share of
Indian carriers is less that 10% of that.
I’m of the opinion that before we relax the cabotage rules we must
ensure a level playing field for Indian flag carriers. Frankly I don’t see why foreign vessel owners
would be so interested in carrying our coastal cargo. At the moment though, I’m referring to
international cargo and how to increase the share of Indian vessels. The main focus though is FDI in shipping.
Today, Indian flag carriers lack a level
playing field. The government allows
100% FDI in shipping but potential investors are put off due to various taxes
and levies. The relaxation of cabotage
rules, currently only to & from the ICTT at Valarpadam, has resulted in foreign
lines being permitted to carry coastal cargo.
These carriers are not subject to the local levies that are forced upon
Indian carriers. This is the main
stumbling block of FDI in shipping.
According to a repost in The Sunday Guardian on
Sep 30, 2102, in spite of 100% FDI being allowed, as many as nine shipping
companies have exited India in the last five years (see http://www.sunday-guardian.com/news/100-fdi-but-nine-shipping-companies-leave-india). Why has this happened? The main reason cited by them is the taxation
policy. They say that Indian shipping
companies pay three times more tax than their counterparts in Singapore. Also, Indian seafarers prefer to work in
foreign flagged vessels due to the fact that they pay no income tax if they do
so. When working for Indian flagged
vessels their salaries are taxable as per Indian standards. India is the largest supplier of seafarers
after the Philippines.
In the fiscal year 2004-05 India introduced the
tonnage tax regime which cut the incidence of income tax on Indian shipping
companies. This resulted in a sharp
growth in tonnage. However, in course of
time, the initial impact of the tonnage tax regime
petered out and very few investments have come from foreign sources. This indicates that more needs to be done on
the tax front. The introduction of the
tonnage tax has been neutralised due to the new service tax regime. This has increased to 12.36% resulting in
shippers having to pay much more.
Here
are some ways in which the sector will be able to attract FDI:
·
The centre should relook at the taxes affecting shipping. These include service tax, MAT and withholding
tax.
·
Seafarers working with Indian shipping lines should be treated as NRIs
and taxed accordingly
·
The infrastructure for coastal shipping should be improved. Besides increasing the volume of local good
moved by sea, it will have a lot of other fringe benefits such as less pollution
and congestion on the roads.
·
Surplus resulting from the sale of vessels should be covered within the
scope of the tonnage tax regime
·
Exempt Indian shipping companies from payment of dividend distribution tax and fringe benefit
tax
·
Exempt imported ship spares/supplies from customs duty
·
Exempt tugs & pusher crafts, dredgers & floating docks, cranes,
production platforms, etc from customs duty
·
Exempt shipping services from service tax
I
am certain that once these measures are in place there will be a great increase
in investment, both FDI & domestic, in the shipping industry.
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