15-08-2017

High tax regime, lack of long-term funds hurting shipping industry

SI

India’s rich maritime tradition — long coastline, supplier of quality seafarers to the global shipping industry, a big market of 1.2 billion people — has not reflected in the numbers it should ideally have.

In 1947, the gross registered tonnage (GRT) of Indian ships was 0.19 million tonnes. Seventy years on, India has 1,348 ships with a GRT of 12.268 million tonnes and a dead weight tonnage of 18.534 million tonnes. Of this, state-run Shipping Corporation of India alone accounts for 5.98 million DWT or 33 per cent of India’s total DWT.

Gross Registered Tonnage (GRT) is the volume of space within the hull and enclosed space above the deck of a merchant ship which are available for cargo, stores, fuel, passengers and crew.

DWT refers to the carrying capacity of a ship in tonnes.

High taxation, lack of cargo support and long-term funds at lower rates have hampered India’s push to increase its GRT by as much as four times to more than 40 million by 2020.

Tonnage tax

The biggest dose of reform for the Indian shipping industry came in 2004 when the Central government introduced the tonnage tax, a levy based on the cargo carrying capacity of ships, reducing the tax incidence of fleet owners to less than 2 per cent compared to the traditional corporate tax structure of over 30 per cent.

Though, the tonnage tax brought Indian shipping industry on par with its global counterparts, the local fleet owners were for many years saddled with dozen other taxes that reduced the competitiveness of Indian ships.

By the time these issues were sorted out, the industry has been hit by fresh turbulence with the introduction of the Goods and Services TAX (GST).

The share of the country’s overseas trade carried on Indian ships has dropped to less than 8 per cent from about 40 per cent in the late 1980s.

“We are nowhere in shipping,” says TV Shanbhag, former chief controller of chartering in the Ministry of Shipping. “With the exception of Shipping Corporation of India and Great Eastern Shipping, where are the ship owners in India,” he asks.

Except Shipping Corporation, no Indian shipping company has an oil super tanker or a very large crude carrier on its fleet. “These are the indicators,” Shanbhag, who headed the government's ship chartering wing Transchart for ten years between 1995 and 2005, said.

Shanbhag puts the blame for the lacklustre performance of the local shipping industry to “policy decisions mainly on taxation”. India allows 100 per cent FDI in shipping, yet not a single global ship-owner has invested in India so far.

On the contrary, Indian fleet owners have started flagging their ships outside India in tax-friendly jurisdictions. This was earlier done by opening subsidiaries abroad. The government has now allowed them to register ships outside through a mechanism called “Indian Controlled Tonnage” without the need to open subsidiaries abroad.

Source: The Hindu Business Line 

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