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P. Manoj

NEW DELHI, Jan. 15

THE Rakesh Mohan Committee on introducing a new tonnage-based tax system for the domestic shipping industry is set to recommend that the option of switching over to the new tax system or staying within the existing corporate tax structure be left to the shipping companies.

However, the committee was of the view that the rates of taxation under the corporate tax system, which averages about 20 per cent for the shipping industry, should be reduced to bring it on par with the tonnage tax regime for companies that chose to stay within the corporate tax structure, sources involved with the exercise said.

Instead of suggesting a complete switchover to the tonnage tax system for the entire shipping industry, the Rakesh Mohan panel was veering around to the view that it would be best left as an option to the existing corporate tax system. The tonnage tax system would thus be made optional as prevalent the world over, they said.

While discussing the issue of making the tonnage tax system as an alternative to corporate tax, the committee had banked heavily on the tonnage tax model followed in the UK and other European countries like Netherlands.

``In the UK, shipping companies can either opt for the tonnage tax system or stay within the existing corporate tax system," the sources said.

The committee will hold a final meeting shortly to give finishing touches to its draft report before submitting it to the Union Government.

The panel is understood to be in favour of reducing the tax liability for those that wish to stay within the existing corporate tax system so that it is put more or less on par with the tonnage tax liability.

Once a shipping company opts for the tonnage tax system, it will have to pay tax annually based on the net registered tonnage (NRT) irrespective of whether it makes profits or not. For computing the tonnage tax, a rates schedule will have to be fixed for different tonnage slabs.

The committee is also expected to recommend a minimum lock-in period for shipping companies that opt for the tonnage tax structure. The model followed in the UK has a lock-in period of 10 years for companies that opt for the tonnage tax. Shipping companies that opt for the tonnage tax system cannot revert to the corporate tax system during the lock-in period.

While strongly recommending the introduction of tonnage tax as an alternative to the existing system, the committee will now discuss the need to amendment the corporate tax structure to reduce the tax liability and bring it nearly on par with the tonnage tax structure. This may require amendments to Section 33 AC of the Income-Tax Act, among other things.

The UK Government had followed this procedure while introducing the tonnage tax system in Britain. The UK model is being considered a good model from the point of view of legislation also.

The panel headed by Dr Rakesh Mohan, Advisor to the Union Finance Minister, Mr Yashwant Sinha, comprises representatives from the Indian National Ship-owners' Association (INSA) and the Finance Ministry.

The basic aim behind the introduction of tonnage tax is to provide a level-playing field in terms of taxation to Indian shipping companies compared with global lines.

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