Shipping Industry

Budget measures

Increase in depreciation rate to 25%

Reduction in dividend tax from 20% to 10%

Budget Impact

Since shipping is a capital-intensive industry, the increase in depreciation rates would increase cash flow, which would facilitate for enhancement of tonnage. Mostly, these companies rely on depreciation and internal accruals for capital expenditure. Though the industry was expecting an increase to 40%, this coupled with the reduction in dividend tax rate to 10% should give shipping companies a breather.

Industry wish list

The existing taxation system should be modified so that Indian shipping companies have a level playing field to its foreign counterparts. If this is not possible, then the current depreciation rate should be brought equivalent to those availed by road or air transport companies.

Income earned by the Indian shipping crew, which is engaged with a foreign carrier, should be tax-free. This is primarily to attract as well as retain workforce.

Key Positives

Rise in industrial production and higher auto sales to boost demand for crude.

Liquefied Natural Gas transportation holds great promise for Indian shipping companies.

Both exports and imports have fared very well in the current year.

The government has finalised the oil exploration programme, which would potentially increase offshore shipping activities.

Strict environmental regulations have resulted in whole scale scrapping of tonnage.

Key Negatives

Indian shipping fleet is minuscule when compared with world tonnage.

A consistent decline in market share of Indian shipping companies in the overseas sea-borne trade.

Lack of fiscal incentives and unfavorable taxation policies have slowed down fleet expansion plans.

Falling freight rates on concerns of over-supply of tonnage in the near future. Besides, slow down in US economy could also result in sluggish demand for tonnage.