Service tax likely to drive out ship management cos

MUMBAI: The imposition of service tax appears to have finally sounded the death knell for ship management companies in India. After having come into force from May 1 this year, the tax has made operations of such companies unviable thus compelling them to either down shutters or sail off to foreign shores.

Since the past decade several foreign companies that had established their manning operations in the country had been on the look out to shifting their management operations too. Though management involves both technical and commercial operations, it is the former that has begun to gather momentum in India.

Capt SM Halbe, director of Loire Marine Services, says, “At present, ship management companies have structured their organisations in such a way that all their back office functions are carried out in India. Globally, however, India is still viewed as an obstructionist ‘bureaucratic’ country. The freedom to operate in Hong Kong, Singapore and other places is phenomenal while in India it is non-existent.”

“With service tax being slapped on us, it will make it difficult for us to compete with those companies that operate from other places that are considered to be secure from taxes,” says a spokesperson of another management company. “Every purchase that we make on behalf of the ship owner, whether bunkers, spares, etc. will include service tax making it costly to function from India.”

Talking in the same pitch Ravi Bhatia of Ind-Aust Maritime, which has been in operation in the country since the past 11 years, says, “The tax authorities say that as long as we are purchasing goods for someone else we will have to pay the 12.24% service tax. We are being put at a disadvantage for no fault of ours.

These types of taxes will break you with the result that instead of concentrating on our operations we will be bogged down with tax problems and the only way out is that we should operate abroad.”

Mahendra Waingankar, of Five Star Shipping, said, “Whatever be the cost of management it should come from the ship owner. The tax makes it impossible for the ship management company to function. The future course for us depends on the response to the representation make by Great Eastern Shipping for whom we undertake the ship management operation.”

Most management companies find themselves in a state of uncertainty. Several operations carried out on behalf of ship owners are being misconstrued, as non-taxable. In such cases the management company may not have paid service tax.

But the lurking fear is that the income tax department might suddenly come down heavily on these companies demanding payment of service tax for the past five years, much after the ship owners may have left them and moved on to something else.