Tonnage tax fails to net FDI in shipping

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New Delhi, Jun 17: The meeting also considered the high level groups recommendations which included that income such as interest income earned by tonnage tax companies should be covered under the tonnage tax regime. Income from incidental activities qualifying under the tonnage tax regime should be suitably enhanced from the existing 0.25% to 1.00 % of the turn over from core activities.

Surplus resulting from sale of vessels should be covered within the scope of tonnage tax regime.

Indian shipping companies should be exempted from payment of dividend distribution tax on dividend declared/distributed to the shareholders. Indian shipping companies should not be subject to fringe benefit tax (FBT) on their major component of expenditure such as travel expenses, boarding and lodging expenses etc incurred for official purposes to ensure their competitiveness.

The ship supplies/spares provided to foreign going Indian ships should be zero rated. Customs duty should not be applicable on import of stores, spares and bunkers on the supplies for use in the international sea-going vessels.

The 5% customs duty on import of tugs and pusher crafts, dredgers and floating docks/ cranes/production platforms be removed.

Service Tax The shipping companies have to pay service tax at the rate of 12.36% on various services rendered to them such as cargo handling, clearing and forwarding, general insurance, clearing and forwarding agent service, port services, repair and maintenance, steamer agents, storage and warehousing, survey, manpower recruitment and professional services. The nature of some of these services like cargo handling and clearing; and forwarding is such that their suppliers have to be local and at the Indian end both Indian owned and foreign ships pay the same service tax.

At the foreign end no service tax is levied on foreign ship owners as shipping services are either exempt or zero- rated worldwide.

Indian shipping companies in terms of normal conditions of business, are obligated to obtain and consume outside India services (input services) like port services, repairs, dry-docking, cargo handling (loading/unloading), steamer agents services to name a few. But they have to pay service tax in India even on services provided from outside and received outside India unless they have been specifically exempted.