The government of India explores a proposal to extend tax and other incentives to draw large players to set up shipping lines in India and provide aid to the exporters grappling with global container shortage and exorbitant freight costs.
Likely to be announced in the upcoming Budget for 2022-23, subject to the finance ministry’s concurrence, the different initiatives are currently undergoing deliberation from ministries of commerce and shipping. It is learned that some officials are studying the attractive Ireland model of taxation for shipping firms. On finalization of a proposal, the ministries will seek the approval of the finance ministry.
In the past year and a half, the Indian shipping industry in the wake of the pandemic has mirrored the global trend resulting in doubling the Shipping costs of Indian exporters to most destinations.
The state-run Shipping Corporation of India (SCI) that caters for less than 5% of the roughly USD100-billion domestic market, has barely been able to keep the cost curve in orderly evolution. In light of this, the government has now put the SCI on the block for sale.
To help ease the strains, a source privy to the matter reveals that the government could extend the validity of the Transport and Marketing Assistance (TMA) scheme, meant primarily for farm exporters, beyond March 2022. Reintroduced this fiscal with larger coverage and greater support, the Centre under the scheme reimburses exporters a certain portion of freight charges. Rates of assistance have been raised by 50% for exports by sea and 100% for those by air.
The Indian exporters are currently being challenged with emerging risks from the new Covid strain, elevated shipping costs, and non-availability of adequate containers, as they seek to take advantage of a resurgence of industrial demand in advanced economies in recent months.
The liberal tax regime offered by Ireland has attracted many global shipping firms to the nation. The shipping firms based out of Ireland pay tax based on the tonnage of the fleet as opposed to a tax on profits recorded by the business. This taxation method along with the low, general corporation tax rate of about 12.5%, typically keeps their tax liability lower than in many other countries. Similarly, no capital gains tax is slapped there on the disposal of a ship.
“Incentivising the setting up of shipping lines in India and even the manufacturing of containers would be a key step towards self-reliance in this area. China has invested hugely in container manufacturing and is now reaping the benefits, although it, too, faces elevated costs,”A senior government official said
Ensuring reasonable shipping costs remains crucial to realizing India’s lofty merchandise export target of USD1 trillion by FY28. The extremely high shipping costs hurt mainly small and medium exporters. The country shipped out goods worth USD 291 billion in FY21 after the pandemic hit supply chains. In the current fiscal, it is on course to meet the ambitious target of USD 400 billion, as demand for merchandise from key markets remains strong.
The shipping costs have been touching the roof across the globe and India isn’t an outlier. It is imperative for the Indian government, to find ways to cushion the blow to them, domestic exporters say.
In its submission before finance minister Nirmala Sitharaman in December, the Federation of Indian Export Organisations (FIEO) said exporters remitted around USD 65 billion for transportation in 2020, which will likely cross USD 100 billion in 2021, given the surge. Since the SCI is being disinvested, the government needs to encourage large entities to build an Indian shipping line of global repute, the FIEO submitted.
Given the government’s target to raise merchandise exports to USD 1 trillion by FY28, this shipping bill of exporters is only going to surge. So, even if such a shipping line captures 20-25% of the domestic market, the country will save a lot of foreign exchange, the exporters’ body has argued.
source: Financial Express