The Hindu Business Line : Pitching for tonnage tax

Foreign lines will find tonnage tax attractive for establishing base in India. The Rakesh Mohan Committee on tonnage tax, which submitted its report last year, had recommended that tonnage tax should be introduced with effect from 2002-03. However, without political patronage, it would not be easy for shipowners to convince the Finance Ministry of the advantages of tonnage tax.

MR P.K. Srivastava is an optimist to the core. Whether as the CMD of India's largest shipping company or the President of Indian National Shipowners Association (INSA), he always looks at the brighter side of things.

When his company suffered losses in the first quarter of this fiscal — after the de-regulation of oil cargo, which was a virtual monopoly of SCI — he brushed aside the view that SCI was hit by competition. "All our ships are fully employed, so where is the question of us losing cargo,'' he pointed out, when asked whether the losses were due to SCI losing monopoly over crude shipment following the dismantling of administrative price mechanism for petroleum products. "Things could be better in the free market, there is room for everyone,'' he said.

Last week, back from a meeting (he and his colleagues from INSA had) with CBDT officials on tonnage tax in Delhi, Mr Srivastava said, "I am hopeful.... You know, I am always hopeful.'' He is hopeful that the government would consider the shipping industry's request for introduction of tonnage tax in the next Budget.

He understands that his colleagues in INSA are not unanimous in their demand for tonnage tax. That the large companies in the private sector are not too keen on tonnage tax is an open secret. They prefer tax exemption under Section 33 AC of IT Act with certain modifications. Under this Section, shipping companies are granted 100 per cent exemption on taxable income if the money is transferred to a reserve for acquisition of ships for five years. However, shipping companies are still subject to MAT.

So an amendment to Section 33 AC would suit them better than introducing tonnage tax. Once opted, tonnage tax, as per the Rakesh Mohan Committee recommendations, is applicable for at least 10 years.

But for small companies and new players, tonnage tax, which works out to a tax rate of as low as 2 per cent, would be beneficial.

Besides, in the long run, tonnage tax can only make the fiscal environment conducive for the industry's growth. Mr Srivastava, being president of INSA comprising large, small and new companies, has to please all.

So, INSA is now seeking both tonnage tax and the benefit under Section 33 AC. And its new slogan is "33 AC and tonnage tax are two sides of one coin''.

While Section 33 AC would give the necessary edge to existing shipping companies, tonnage tax would induce new players.

Foreign lines, which in spite of allowing 100 per cent FDI in shipping have stayed away, will find tonnage tax attractive for establishing base in India. Shipping tonnage of countries such as UK, Germany, the Netherlands and Greece have improved significantly after the introduction of tonnage tax, goes the arguments supporting it.

The Rakesh Mohan Committee on tonnage tax, which submitted its report last year, had recommended that it should be introduced with effect from 2002-03. The suggestion is to follow the British Model by amending the IT Act and make it as an option along with the existing corporate tax.

While it remains to be seen how far CBDT was convinced of the merits of tonnage tax from the presentation by INSA team, the fact is that shipping being an international business needs a level-playing field to compete globally.

And fiscal incentive is an important leveller in this context. But going by the way the policy decisions are taken, it would not be easy for ship owners to convince the Finance Ministry of the advantages of tonnage tax without political patronage. Yet, it is better to be hopeful, as Mr Srivastava is.

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