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Tax to make shipping costlier

Tax to make shipping costlier
The shipping industry, which was pinning its hopes on a booster dose to sail through the economic slowdown, is unhappy with the Budget.

The shipping industry, which was pinning its hopes on a booster dose to sail through the economic slowdown, is unhappy with the Budget.

The shipping industry, which was pinning its hopes on a booster dose to sail through the economic slowdown, is unhappy with the Budget. According to the industry, service tax on coastal and inland waterways cargo movement is expected to make this mode of transportation costlier and may lead to diversion of a slice of traffic to other modes. ?We are already hammered by high interest costs and port charges. An additional tax burden will further erode the profitability of coastal shipping,? said Mr Sarvesh K.Shahi, Chairman of SKS Logistics Ltd, a leading coastal cargo carrier.

In the past, though the Government had introduced tonnage tax to help companies expand their tonnage, several other levies such as service tax and withholding tax have made it difficult for ship owners to keep apart the mandatory surplus for tonnage acquisition. Prior to the Budget, the shipping companies had sent a proposal to the Finance Ministry to set up a corpus of Rs 10,000 crore for soft-lending to them. But, there was no mention of this in the Budget. The industry is in dire need of soft finances, as nearly half of the shipping fleet (4 million GRT of the 9.03 million GRT) needs to be replaced in the next three years, as it would have exceeded the international age norms.

Investments needed

Being a capital-intensive business, replacement of this tonnage needs huge investments in foreign currency. According to industry estimates, for the domestic industry to retain its current 13 per cent share in the national cargo, it needs an investment of around $20 billion during the 11th Plan.

?We were hopeful of getting some stimulus in the Budget. In fact, we did have several meetings with the Government. Raising capital is a major concern today with almost every shipping firm struggling to raise funds for expansion,? said Mr Sudhir S. Rangnekar, CEO, Indian National Shipowners" Association.

Until eight months ago, shipping companies were able to raise debt at an interest rate as low as 4 per cent in the foreign markets with repayment tenure stretching up to 15 years.

But now, it is difficult to raise foreign currency resources at LIBOR + 400-600 basis points, said Mr Hajara, Chairman, Shipping Corporation of India.

?Many international banks which have been recapitalised have done it under of condition of improving liquidity in their own domestic industry,? Mr Yudhisthir Khatau, Vice-Chairman and Managing Director of Varun Shipping, said. Varun Shipping has already cut its capex by three-fourth to $100 million and is exploring options to buy assets from second-hand market for its offshore sector.

However, Mr Hajara said, ?We will continue to demand a stimulus package for the industry, in view of weak freight market. We hope for some post-Budget consideration by the Government,? he added.

www.TurkishMaritime.com.tr

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