New Service Tax norms on Shipping Lines may hike shipping cost
Recent Union budget has a proposal that can considerably hike shpping cost. According to proposed new norm for paying service tax - an Indian ship will have to pay service tax for services availed in foreign ports. So, an Indian ship picking up a consignment in a foreign port and delivering it to yet another foreign port will now have to pay a service tax of 10.2 per cent on all services that the ship uses in foreign ports whenever it touches a home port.
Thats not all ! The ship will have to pay service tax on the port charges it incurs in a foreign port. This is part of the Government's initiative to tighten the norms for payment of service tax, as put forth in its recent Union Budget.
As implications of the new norms are sinking in - shipping industry gets nervous. Shipping being a global market, any such taxation will put Indian ships in a disadvantageous situation vis-a-vis foreign liners. The Ministry of Shipping is likely to take up the issue with the Finance Ministry in the next few weeks, seeking exemption from payment of tax on services Indian ships hire at foreign ports. The Finance Ministry has recently clarified to the shipping industry that the new norms of service tax were in accordance with international practice.
"Paying tax on the services we hire from the Indian ports is one thing, but paying the same tax on services at foreign ports is quite another. We have to routinely visit foreign ports as part of our operations," points out Mr Atul Aggarwal, Director of Mercator Lines.
In fact, shipping industry has to necessarily avail a wide variety of services at foreign ports, including port services, dry-docking services and survey services.
"These services are part of our routine operations and paying a 10 per cent tax on these will blunt our competitive edge with foreign shipping companies, with whom we have to compete for cargoes.
The tax burden will be huge, especially as we do not have the benefit of price preference in the international shipping market," said another industry representative.
That this should come at a time when the shipping industry is booming in the wake of a buoyant freight market has further caused panic in the industry.
It remains to be seen whether it can manage to wriggle out of the new service tax net that the Government has proposed to throw over the Indian industry.
March 29' 2005
