India: Is GST Applicable to Shipping Sector?

(Image Courtesy: Glory Logistics)

Excessive taxes have severely impacted Indian shipping, said industry veteran and CMD, The Great Eastern Shipping Co, KM Sheth in an interview to The Hindu Business Line. Here are the excerpts –

What is the current state of play in the shipping industry?

It’s in a very bad state. I would attribute it to three main reasons. Globally, the freight market is in a bad shape. There, you cannot blame anybody. You are playing the game.

Secondly, because the industry is not in good shape, banks have become very difficult. So, it’s almost impossible now to raise loans for shipping. It has nothing to do with the Nirav Modi episode. In any case, Indian banks are not competitive compared to foreign exchange loan for shipping.

Third, is the present policy of the government.

How have the government policies affected the industry?

Indian shipping has not grown as much as it should have, considering the country’s trade volume and vast coastline. At one point, the country’s fleet used to carry as much as 37 per cent of India-bound trade. For a variety of reasons, it has now dropped to about 8 per cent.

With a view to encouraging the growth of the fleet, and after much debate, the government, in 2004, introduced tonnage tax for the shipping industry.

And, in one year after the new tax was introduced, The Great Eastern Shipping acquired 12 ships because it was very encouraging. Instead of corporate tax, the industry is now paying tonnage tax. In 2004, the corporate tax was nearly 33.5 per cent and the tax liability of shipping firms dropped to nearly 3 per cent after the new tax was introduced.

Unfortunately, thereafter, the government started introducing different taxes from time to time. Until the GST rollout, we were saddled with 13 additional taxes. As if this was not enough, they brought shipping under GST. This takes us back to square one, making us globally uncompetitive.

In spite of the difficulties that Indian shipping is going through, there is no incentive from the government and they keep on imposing more taxes.

Tell me, where is the logic in applying GST to shipping? We are in an international business; how does GST come into the picture? If my ship brings crude oil from the Middle East to India, I’m liable to pay GST. But if a Greek ship does the same, it pays nothing. The government keeps on exhorting the Indian industry to become globally competitive. And they are making us uncompetitive.

You mean to say it’s become an uneven playing field now?

Totally. The government should realise that. There is no incentive for Indian fleet to expand. We are squeezed by the bad global market, getting banks loans has become difficult and the policies are making us uncompetitive with our global competitors. So what will prompt us to expand? Nothing.

Unless something is radically done, there are very little prospects for expansion. I wish wise counsel would prevail in Delhi. I hope a day will not come when the shipping industry has to be converted into a charitable trust.

Are you seeking favours from the government?

We are not seeking any favours from the government. We are only asking to be put on par with the global industry and then see how well fare. And, with the rupee depreciation, it will make us more competitive.

When do you think shipping will come out of this bad phase? It’s been close to a decade now since the global meltdown?

It’s very difficult to predict. Because, those who are having long-term contracts are ordering more ships and that is flooding the market, creating more imbalance between demand and supply. And scrapping of old ships is not happening fast enough.

(Source: The Hindu Business Line)

Sea News, March 14