Shipping Industry

Budget measures

The Finance Minister has extended the amount that can be transferred to a special reserve for purchase of new ships out of the entire profits from twice the paid-up share capital of the company by including share premium reserve and general reserve also. This reserve will not be considered while computing the book profits. So shipping companies would thus be out of the purview of minimum alternate tax (MAT).

Corporatisation of major ports in India. Increasing private participation and strengthening of the regulatory structure.

Budget Impact

Exemption of shipping companies from minimum alternate tax is a positive for the industry, as this would lower tax outflow. Besides, increase in the scope of special reserve will enable shipping companies to increase capacity.

The government has already made some head away on corporatisation of major ports in India. Private sector investments have been facilitated and 17 projects worth more than Rs 45 bn have already been approved and another 8 projects worth more than Rs 32 bn are under consideration. This augurs well for the shipping sector in the long run.

However, the finance minister has failed to introduce tonnage based taxation system, which the industry has been lobbying for quite some time. This is a negative for the sector.

Industry wish list

The existing taxation system should be modified so that Indian shipping companies have a level playing field with their 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.

The industry required infrastructure status for easy access to capital.

Key Positives

The new regulation of scrapping single hull tankers by FY05 bodes well for the shipping sector. Strict environmental regulations have resulted in scrapping of tonnage.

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

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

Indian companies are slowly expanding their presence in the international markets. This could increase their expertise level.

Key Negatives

Slowdown in world trade has exercised a downward pressure on freight rates. The slowdown in the US economy and cut in crude output by OPEC are also a cause of concern.

Supply of tonnage has been rising at a rapid pace.

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