The Hindu Business Line : Rakesh Mohan panel report -- `Incorporate tonnage tax in I-T Act'

The committee has also recommended a minimum lock-in period of 10 years for shipping companies that opt for the tonnage tax regime. This implies that once a shipping company opts for the tonnage tax system, it cannot revert to the corporate tax regime before the lock-in period of 10 years.

NEW DELHI, Jan. 29

THE tonnage tax panel headed by Dr Rakesh Mohan has recommended that the Union Government make necessary provisions/ amendments in the Income-Tax Act to give effect to the tonnage tax system.

The report, submitted recently, said the Income-Tax Act would have to be amended to provide for the qualification of shipping companies, shipping activities, income, eligibility criteria for ships, rules of entry and exit as well as accounting standards for the purpose of administration of the Act under the tonnage tax regime.

The panel has recommended a tonnage tax rate of Rs 40 per day per net registered tonnage (NRT) for shipping companies with tonnage of up to 1,000 NRT, Rs 30 for NRT between 1,000 and 10,000, Rs 25 for NRT between 10,000 and 25,000 and Rs 15 for NRT of 25,000 and above.

The tonnage tax scheme must be ready for implementation with effect from fiscal year 2002-2003.

The report suggested that the Union Government should allow a window period of two years for shipping companies to opt for the scheme after the amendment comes into force.

It also recommended a minimum lock-in period of 10 years for shipping companies that opted for the tonnage tax regime. This implies that once a shipping company opts for the tonnage tax system, it cannot revert to the corporate tax regime before the lock-in period of 10 years.

Besides, the committee prescribed that once a company opted for tonnage tax, a minimum of 20 per cent of the book profit computed as per the Companies Act should be credited to a separate reserve account and the sum thus set aside should be utilised for the sole purpose of acquisition of vessels within a period of eight years.

The shipping companies should also be given the freedom to opt for the tonnage tax regime or continue to remain with the normal corporate tax regime, it said.

"With this report and the fact that the committee was headed by Dr Rakesh Mohan, Advisor to the Union Finance Minister, something should come about," a Government source said.

The critical issue facing the Indian shipping industry is to have a lower level of taxation so that it can compete with foreign shipping lines.

Lower taxation is vital since about 90 per cent of the world shipping tonnage operates in regimes where the level of tax is very low. Instead of looking at revenue losses, the Union Government should implement the recommendations made by the tonnage tax panel, as this will also have a spin-off effect on various ancillary sectors related to shipping.

The tonnage tax panel has listed eight areas that would get a big boost if the tonnage tax system were introduced.

These include shipbuilding and ship repairs, ship classification, offshore activities, dredging/port development and related port management issues.

Further, activities like deep-sea fishing, ocean engineering, sea-bed mining, marine training and establishment, ship finance, marine insurance, loss prevention, claim settlement, legal and arbitration services are expected to get a fillip with the introduction of tonnage tax.

Coastal shipping would also benefit under a tonnage tax regime, the report noted.

"These activities will proportionately flourish when there is more of ship acquisition to take advantage of the tonnage tax regime," the sources said.

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