The Hindu Business Line : Seafarers' tax: Novel idea to retain manpower

The scheme proposed by Indian ship-owners to stem the tide of Indian seamen going to foreign ships is novel and equitable. However, while it is revenue-neutral for the government, the fact that it is not levied by any other country may make it difficult for ship-owners to convince the tax administrators and unions of its benefits.

Indian shipowners have hit upon a novel idea to arrest the exodus of seafarers to foreign ships. Put into practice, they believe it will reduce the disparity in wages between Indian and foreign ships.

And that, in turn, will ease the shortage of marine officers — a problem that has been plaguing the domestic industry for a long time.

The tax-free pay in foreign vessels is the main attraction that prompts Indian seamen to desert their national flag carriers. The idea is to remove this bait.

The shipowners' suggestion is simple: Introduce a new tax — call it Seafarers' Tax — which would be applicable to all holders of Indian CDC (continuous discharge certificate, a document similar to passport issued to seamen by Indian maritime authorities).

The tax would be collected on a fixed rate — a percentage of the seafarers' gross earnings. While the proposed tax will replace the Income Tax for seamen employed on Indian ships, it will be a new levy for Indians working on foreign ships.

The beauty of the proposed tax is that though it will eliminate Income Tax, it would not result in any loss of revenue to the government.

On the other hand, it will bring more people into the tax net and, over a period, the revenue to the exchequer may increase.

According to shipowners who discussed the idea with the Director General of Shipping recently, the Seafarers Tax — in line with the tonnage tax for shipping lines — would be easy to administer.

This can be introduced by making the tax payment mandatory for Indian seafarers for renewal of their CDCs. Without a valid CDC, seafarers cannot work on a ship.

How does it work?

Currently, about 30,000 seamen — 21,000 ratings and 9,000 officers — are employed in Indian ships. It is estimated that at the current Income Tax rate, they pay a total amount of Rs 86 crore per annum.

Foreign ships employ around 52,000 Indian men — 34,000 ratings and 18,000 officers. It is estimated that they earn a gross salary of Rs 1,200 crore per annum but do not pay any tax.

If all the 82,000 seafarers — both on Indian and foreign ships — pay a flat rate of, say, five per cent of their gross earning as tax, the government would get the same amount or more than it is now getting from seafarers employed on Indian ships alone.

According to Indian ship-owners, while this would reduce the tax burden of seafarers working in Indian ships considerably, it will not hurt their counterparts on foreign vessels, as it works out to only a small percentage of their gross earnings.

Equitable scheme

The advantage of the scheme is that the tax will be applicable to all seafarers holding Indian CDCs, irrespective of their residential status.

This will not only provide an equitable tax structure, but make for greater equity, as no one will be able to escape the tax net, say ship-owners.

The idea sounds great. And the scheme as proposed to put the idea into practice also seems easy and workable.

As it is a revenue-neutral proposal for the government, it would be better than the NRIs status scheme seeking Income Tax exemption for seafarers working on Indian ships.

But the problem is that, unlike tonnage tax, no country in the world practices anything like a Seafarers Tax as proposed by Indian ship-owners.

There are no records to show the implications of such a tax.

This would make it difficult for ship-owners to convince the bureaucrats, tax administrators and unions of the benefit of the proposed tax.

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