Vol- 8 issue-08

6 TMWS 16 th - 30 th April 2018
Nautical News
www.tmwsmagazine.com
Indian shipping industry may hit
foreign shores to fight slump
Caught in deep waters, the Indian shipping
industry may be contemplating
converting their ships to foreign registration,
potentially causing a loss in
taxes of about Rs 8,000 crore to the
central exchequer. Anil Devli, CEO, Indian
National Shipowners’ Association
(INSA), said, Indian shipowners could
switch to a foreign flag if the government
refrains from offering cargo support
to the domestic industry in order
to compete with foreign shipping lines.
Devli said, “While India does not practice
cabotage, there is a provision under
the chartering guidelines offering
the domestic industry the right of first
refusal (RoFR) in case a foreign company
emerges as a lowest bidder for
any cargo contract. In the absence of
RoFR, there is no incentive to remain
flagged in India.”
According to estimates, already, around
35% of the total fleet owned and controlled
by Indian interests is flagged
overseas because of lack of cargo support
and high taxes. Cabotage laws apply
to ships in most countries so as to
protect the domestic shipping industry
from foreign competition. However,
in India, shipping companies only get
RoFR, or the right to match the lowest
price offered by a foreign ship. If the
Indian ship does not accept the rate
quoted by the foreign flag, then the foreign
flag is given the licence by INSA
within 24 hours to execute the contract.
In the current scenario, although Indian
shippers are able to match or offer
better rates than foreign shipping lines,
their market share is less than 10% of
the total cargo movement.
Foreign vessels carry over 90% of Indian
cargo. According to latest data
from INSA, in FY15-16, the share of Indian
ships in the carriage of EXIM cargo
was a miniscule 7.86%. An Indian
vessel is less competitive because of
multiple taxes, the higher cost of bunker
fuel and a levy of 5% as integrated
goods and services tax (IGST) on the
purchase value of new ships.
Moreover, Indian shippers are compulsorily
required to employ more numbers
of seamen on their vessels compared
to foreign ships. This not only results
in a higher wage outgo but companies
also have to bear the income tax burden
of 30% for each employee, in order
to remain competitive with the wages
offered on foreign ships.
Devli said, in comparison, a foreign
vessel pays only a tonnage tax. He explained,
“Worldwide, there is no goods
and services tax (GST), value added
tax (VAT) or any sort of direct tax other
than tonnage tax that is applied on the
shipping industry. Even the tonnage tax
lower in other countries.” For instance,
for a vessel of 800 tonne, the tonnage
tax in Singapore, converted into Indian
currency, at `7,784 is lower by 87%
while in the UK, it is lower by 51%. For
a vessel of 28,000 tonne capacity, the
tonnage tax in Singapore, at `2,72,440,
is lower by 80% when compared to
India. In UK, it is 57% lower while in
Japan, it is 4% lower. With respect to
GST, a shipping company in India pays
tax on all input services availed by it,
such as cargo handling, clearing and
forwarding, port services, repair and
maintenance, storage and warehousing,
manpower recruitment,
hiring of vessels, etc. In the European
Union (EU), China, Australia, the UK
and Singapore, there is either no GST
or it is zero rated. In a zero-rate regime,
the shipping company is not taxed but
can still avail input tax credit for goods
and services used. Second, the cost
of wages forms about 40% of the total
cost of operations of a ship.
However, this is higher for Indian ships
as they also need to factor in the tax
rate of 30% on the wages paid to their
employees. Third, bunker fuel, that
ships use, is also costlier in India.
Fourth, Indian shipping companies
need to pay 5% IGST on the purchase
of new ships. Ranjit Singh, ED & CEO,
Essar Shipping, said, for a tanker that
costs a minimum of $40 million, an Indian
company would have to pay $2
million upfront as IGST. He said, “No
bank will fund me for tax so I have to
arrange these funds on my own.
The government is offering input credit
over the life-cycle of the ship but this is
not the ideal solution. What is worse is
a foreign company can make the same
purchase without having to pay the 5%
IGST.”
According to data from INSA, over the
last 25 years, the planned expenditure
on the shipping industry was just
1.78% of the expenditure on railways
and 2.3% of the roads sector. With almost
zero budgetary support to Indian
shippers over the last 25 years and policies
that put them at a disadvantage
compared to foreign shipping lines, the
amount remitted out of India as freight
is about $52 billion.
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