BackGovt frames guidelines for registering ships overseas
Fleet owners will have to hire Indian crew and provide training slots for cadets on ships registered overseas
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Bangalore: The government issued detailed guidelines on a so-called Indian-controlled shipping capacity announced in the budget, making it mandatory for fleet owners to hire Indian crew and provide training slots for cadets on ships registered overseas, in line with the requirements of the tonnage tax scheme.
The Indian-controlled tonnage scheme frees local fleet owners from having to mandatorily register their ships in India required by the Merchant Shipping Act of 1958. As a result, ship owners can register their ships either in India or abroad. Ships registered overseas will come under the category of Indian-controlled tonnage.
Local ship owners have been registering ships in tax-friendly nations such as Singapore through foreign subsidiaries.
A minimum of 50% of the crew (officers and general purpose staff combined) engaged on the vessel as per statutory requirement, or actual deployment, whichever is higher, should be Indian, holding relevant Indian certificates, director general of shipping Gautam Chatterjee wrote in a 23 July order reviewed by Mint.
The vessel, if operating on the Indian coast, or Indian offshore oil fields, should engage trainee cadets and officers in accordance with the provisions of the tonnage tax scheme irrespective of whether the fleet owner avails of the benefits of tonnage tax or not. The trainees should be distributed equally between the navigational and engineering sides.
If the law of the flag state where the ship is registered mandate an engagement of crew from the country concerned or local provisions mandate use of local crew of the nationality where the vessel is employed, such foreign crew may be engaged on board to the extent required.
The training commitment stipulated for the Indian-controlled tonnage shall be over and above the training commitment outlined in the tonnage tax scheme if the ship owner avails of the tonnage tax scheme for the vessel so registered overseas.
Tonnage tax is a levy based on the cargo carrying capacity of ships as compared with the traditional corporate tax. The tonnage tax scheme was introduced by the Union government from 2004 as a substitute for corporate tax. More than 90% of the global shipping fleet operates on tonnage tax, where the tax burden is just 1-2% of their income compared with the corporate tax rate of 33.9%.
To qualify for tonnage tax benefits, ships have to be registered in India. Ships hired from overseas are also eligible for the benefits with certain conditions.
According to the Tonnage Tax Act, a firm can claim tonnage tax on ships hired from within India or abroad to carry cargo, subject to a ceiling not exceeding 49% of its owned shipping capacity.
Indian-controlled tonnage can use this clause to claim tonnage tax.
The foreign registered ships controlled by Indian entities can be in-chartered (hired) by the same entity and such ships will get second preference for moving cargo along local routes within Indian waters after full-fledged Indian registered ships.
Local laws permit only Indian-registered ships to operate along India’s coast for carrying cargo; foreign ships can be hired only when Indian ships are not available.
The scheme will also help Indian shipping companies raise cheap funds overseas without the problems associated with Indian-registered ships. Indian flag is not considered a friendly flag by international lenders due to inflexible Indian registration formalities/rules.
Atul Agarwal, managing director of Mumbai-listed Mercator Ltd, said that the measure is in favour of the country.
“By this facility, the country benefits far more than the ship owners because of the economic and financial advantages that flow to the country. The Indian fleet owners are not benefiting by way of any taxes because local taxes flow with the ownership and not with the flag", Agarwal, who is also the president of the Indian National Shipowners’ Association (INSA), a lobby group, said.
The ships flagged outside India, by an Indian entity at any given time, should not exceed its owned tonnage under the Indian flag. Also, fleet owners have to at least maintain the level of its Indian flag tonnage as on 1 April 2014, according to the guidelines. Hence, existing tonnage cannot be flagged outside India; only additional ships purchased will be allowed to do so.
India’s national shipping tonnage was pegged at 10.47 million gross tonnage (GT) on 1 April.
“Indian flag and Indian controlled tonnage are vital for India’s trade, food and energy security and for the growth of India’s export-import trade. It will also help fleet owners access finance and business abroad," director general Chatterjee wrote.
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