Source: ET Infra
The Great Eastern Shipping Company Ltd, India’s biggest private fleet owner, has taken the plunge to open a unit in the International Financial Services Centre at GIFT City to pursue ship leasing business including owning, operating, chartering vessels and other permissible activities as the government looks at ways to boost Indian tonnage by offering a slew of tax incentives from a special economic zone.
The Gujarat International Finance Tec-City (GIFT City) is India’s first International Financial Services Centre (IFSC) under the Special Economic Zone Act.
On 15 Match, the board of The Great Eastern Shipping Company approved a proposal to set up a wholly owned subsidiary named The Great Eastern Shipping (IFSC) Ltd’ in IFSC-GIFT City with an authorised equity share capital of Rs 50 crores, the Company said in a stock exchange filing.
The Great Eastern Shipping Company has thus become the first member of the 45-member strong Indian National Shipowners Association (INSA), a local fleet owner lobby group, to open a unit in IFSC-GIFT City that seeks to remove the competitive disadvantages on taxation and finance faced by fleet owners operating from the domestic tariff area (DTA) regime and help expand Indian tonnage.
The growth of Indian-flag shipping tonnage has not kept pace with the growth of Indian trade needs, according to the Maritime Amrit Kaal Vision 2047 document.
“This has led to more than 93 per cent of Indian origin or destination international cargoes, and about 39 per cent of total Indian cargoes (including coastal and offshore operations) being carried on foreign-flagged ships, with an annual freight outgo of about $75 billion. The share of Indian flag ships in India’s EXIM (export-import) trade has steadily decreased from 40.7 percent in 1987-88 to less than 7 percent,” the document said.
The number of ships under the Indian flag has grown over the years but the share of the Indian fleet as a percentage of the world fleet is hardly 1 percent compared to top maritime nations such as Greece, China and Singapore.
“India should have a healthy merchant marine fleet and policies that will promote growth of Indian tonnage by adding more ships to the Indian flag which would further the economic and environmental interests of India,” the Maritime Amrit Kaal Vision 2047 document added.
The International Financial Services Centres Authority (IFSCA) is enticing shipping companies to set up ship leasing units in the GIFT City, offering a host of tax incentives and exemptions, such as tax holiday for any ten of the first 15 years, no capital gains during tax holiday, exemption from the Goods and Services Tax, stamp duty exemption for five years and no capital gains on transfer of ships by a IFSC unit enjoying 100 percent tax exemption. Additional exemptions have also been granted on income generated by way of royalty or interest paid on account of leasing of ships.
Some ship owners operating from the domestic tariff area regime have been sceptical of moving their existing ships to the IFSC platform.
“During discussions with the IFSC Authority, we have told them that the objective should not be to pull ships from Mumbai. The objective should be to pull ships from Singapore and Dubai. They should not kill the DTA regime and move all the existing Indian flag ships there. Then, there is no benefit to the Indian economy, merely moving from Mumbai to Ahmedabad,” an executive with a shipping company operating under the DTA regime said.
“It’s true that we continue to be stuck at about 7 percent of India’s EXIM cargo,” Anil Devli, Chief Executive Officer at the Indian National Shipowners Association (INSA), said while speaking at the “India Ship Finance Forum’ organised by Marine Money on 20 February in Mumbai.
To illustrate the competitive disadvantage, Devli said that if an Indian flag ship has to transport cargo from location A to B and compete with a foreign flag vessel to do exactly the same voyage, and if the cost for the foreign flag vessel is Rs100, then the cost for the Indian ship is Rs119.25 paise. That’s a 19.5 percent increase in cost that an Indian company has to pay.
“So, when you have to match the rate and yet be able to take care of the 19.5 percent higher cost, it definitely gets difficult for Indian shipping to compete. It’s not as if Indian shipping doesn’t grow, it’s not like they are not buying assets, but you find a lot of my members are carrying on business internationally. We do a lot of less India centric business and a lot more international business. A lot of my members do a large amount of business in international waters rather than Indian related,” Devli said.
Besides, when an Indian ship owner buys a ship and brings that vessel into India, he pays a 5 percent IGST on the ship. “A 5 percent IGST on a $40 million or $50 million asset is a huge amount of money. Banks don’t give you money for duties and taxes,” he explained.
“Thereafter, if I transport cargo on the coast of India, I pay again a 5 percent IGST. If I carry out repairs on my ships anywhere in the world, I pay a 5 percent reverse charge GST in India on the total amount of money that I spent repairing my ships outside India. All of this does not apply to my competition, which is non-Indian flag,” he continued.
“In IFSC, we’ve been able to get that change. The government sees value in providing a platform where you can go flag and compete with the world at large. We are hoping that this will mean that there will be a greater understanding of what needs to be done,” he asserted.
Devli said that fleet owners operating from the DTA regime “can survive with the duties and taxes”.
“Really that doesn’t bother us, I must confess. We kind of got that into our system. But the most important thing that we believe we need is long term funding. We need longer term money; we need shipping banks that understand shipping and provide shipping finance. In the earlier days, we had a Shipping Credit and Investment Corporation of India (SCICI) who used to provide specialised funding for shipping. Today, banks support our members, but they are commercial banks with short term money, and they are unable to provide us money long term. Whereas my asset life would be 18-20 years and for funding that what we get in India is 6-7 years,” he added.
