Shipping industry may have to pay more tax

NEW DELHI: Shipping companies are in for some real taxing times. The tax burden for the shipping industry, which is only about Rs 20 crore (calculated on the tonnage tax basis), is set to go up to Rs 2,000 crore if chartering a ship is defined as rent income by IT department.

The shipping industry has approached the Bombay HC against the IT department’s move to treat shipping freight, as rent. If shipping freight is treated as rent, it would amount to an additional 20% tax for the industry. The Bombay High Court is expected to give its final verdict in a few days.

“The IT department had amended Section 194 in July 2006 with the effect that charter hire would be treated at par with hiring of plant and equipment. This means that TDS would be at 20%,” an official said. Section 194 of the Income Tax Act lays out guidelines for taxation of rent. The Court has granted two interim relief’s to the shipowners represented by the Indian National Shipowners Association so far and the matter is subjudice.

Though the matter had been discussed with the finance ministry, shipping companies got no respite in the Budget. “The tonnage tax was introduced in 2004 with the aim of providing shipping companies a tax regime comparable with most maritime nations and to give them a competitive edge. A TDS of 20% would reverse that intention and upset the cashflow,” the official said.

Tonnage tax means tax levied on the tonnage of shipping companies as against the normal corporate tax, which is based on the profits earned by them.

“Indian shipping companies presently pay about 10% in the form of taxes while the world average is about 4%,” KPMG executive director Arvind Mahajan said. The shipping industry is already burdened with 12 different taxes. Any further taxation would undoubtedly worsen the situation, since a number of shipping lines are already flagging off to zero-tax countries like Panama and Singapore..