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Dredgers brought under tonnage, service tax net

Our Bureau

New Delhi , March 1

THE Finance Minister, Mr P. Chidambaram, has included dredgers under the scope of the tonnage tax scheme that was introduced last year for the domestic shipping industry.

The Government proposes to amend Chapter XII-G of the Income Tax Act to extend the scope of tonnage tax to dredgers.

"This levy, in the case of dredgers, will be in lieu of income tax at the option of the tax payer. The amendment will take effect from April 1, 2006 and will, accordingly, apply in relation to the assessment year 2006-07 and the subsequent years," says the Finance Bill, 2005.

Leading domestic dredging companies such as State-run Dredging Corporation of India and emerging private players such as Jaishu Shipping and Dredging and Dharti Shipping will benefit from this decision.

But it will not enthuse multinational dredging firms to set up shop in India by converting foreign flag dredgers into Indian flag dredgers.

"Tonnage tax is not an issue for us. It will not help convert foreign flag dredgers into Indian flag dredgers. What actually counts is the market possibilities to do business in India," a foreign dredging company official said.

Dredging firms were left high and dry after the Government omitted dredgers from the ambit of the tonnage tax scheme last year and simultaneously scrapped the benefits accorded under Section 33 AC. The Finance Minister has now corrected this omission, after strong intervention from the Shipping Ministry.

The tonnage tax provisions have fixed the daily tonnage income on the basis of a slab structure which, when multiplied by the number of days the ship operated, will give the annual tonnage income from the ship on which the prevailing corporate tax rate will be applied to arrive at the tonnage tax levy.

While deciding to include dredgers under the tonnage tax levy, Mr Chidambaram has also brought dredging services at rivers, ports, harbours, backwaters and estuaries under the service tax net.

Accordingly, dredging firms will have to pay a service tax of 10 per cent for providing dredging services. This will jack up the cost of dredging services as dredging companies will recover the service tax from their customers while making the bill.

"Major port trusts which require constant dredging of the channels and berths will be the main losers due to the Government's decision to impose service tax on dredging services. Dredging firms will not lose anything, as the service tax will be recovered from the port trusts. The dredging costs of major ports will go up as a consequence," a port trust official said.

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