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N. K. Kurup

The `lagaan' ad is just a part of a massive campaign being launched by shipowners to voice their concern. If the Finance Minister adopts Kelkar's prescription, large shipping companies such as Shipping Corporation of India and the Great Easter n Shipping will be hit hard. So the frantic reaction of shipowners is quite natural.

A NEW ad by Indian shipowners seeking introduction of tonnage tax combined with benefit under Section 33 AC reads "... A friendlier lagaan for Indian shipping will multiply growth and wealth...'' Apparently, the Kelkar Committee report has frightened shipowners. The process of Budget-making has already begun. If the Government accepts the committee's recommendations, shipowners will lose the advantage of 33 AC. On the other hand, even if the government agrees to introduce tonnage tax in the coming Budget, its implementation will take time. So captains of the industry are now worried that they may end up as `Devdas' having neither 33 AC nor the tonnage tax (TT).

Section 33 AC enables shipping companies to transfer their profit to a reserve for acquisition of ships. The last Union Budget had, in fact, expanded the scope of the Section raising the limit of such amount that can be transferred to the reserve up to twice the paid-up capital of the company plus the share premium and general reserves. This was aimed at helping shipping companies to acquire more tonnage.

If the Finance Minister, Mr Jaswant Singh, adopts Kelkar's prescription, large shipping companies such as Shipping Corporation of India and the Great Eastern Shipping will be hit hard. So far, the two could transfer the maximum permissible amount of profit to the reserve.

So the frantic reaction of shipowners is quite natural. If indications are anything to go by, the `lagaan' ad is just a part of a massive campaign being launched by shipowners to voice their concern. Shipowners are awaiting the report of a reputed consultant appointed by them to study and prove how the growth of shipping is important to the country. The report, to be submitted to the Finance Ministry, is said to form the basis for the second round of campaign.

Shipping lines' argument is that while Section 33 AC would give the necessary edge to existing Indian companies, tonnage tax would induce new players.

"Though, on the face of it, the argument may sound as if shipowners are asking for too much, in reality, it is not so. The tonnage tax, as proposed, is optional. Shipping firms can opt for either that or the corporate tax. Those who opt for corporate tax could be given other incentives such as 33 AC. For a business exposed to global competition, the existing `lagaan' for shipping is too industry-unfriendly,'' says a shipping company official.No wonder, Great Eastern Shipping has recently said it will consider flagging out its fleet if the current tax regime for shipping continues.

Mr K. M. Sheth, Executive Chairman, Great Eastern Shipping Company, has stated that, "We are seriously considering flagging out our ships. The company has no particular benefit in operating its fleet under the Indian flag in the existing tax regime.''

"Tax rates in India are very high compared to several other maritime countries and Indian ships no longer enjoy any cargo preference in India. Being in the national registry only erodes shipping companies' competitiveness in the existing fiscal regime. Tax rates and other operating costs work out much lower for shipping lines registered in Singapore and London,'' said Mr Sheth.

Flagging out may not help Indian companies much in saving taxes in India. Ships flagged out of India will not be subject to Indian tax laws though they are owned by Indian companies through their subsidiaries. However, the dividend remitted by the subsidiary will be taxed in India. Indian lines can acquire fleet through their overseas subsidiaries (as is being done by some Indian lines) and bring them to Indian through bare-boat chartering. The advantage would be that the vessel can carry Indian cargo, but will not be subject to Indian taxation. It remains to be seen how far shipowners can convince the Finance Minister and his team to adopt a "friendlier lagaan'' for shipping.

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