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Shipping sector needs simplified tax regime: Study
November, 20th 2006
Apart from recommending a simpler tax regime for the Indian shipping sector, a recent KPMG study also calls for focus on the ship-building and ship-repair segment, maritime security, ports, hinterland connectivity and human resource development.

To revive the Indian maritime sector, there is a need to simplify the taxation regime in the shipping industry, says a recent study. The KPMG report, commissioned by Confederation of Indian Industry (CII), also calls for focus on the ship-building and ship-repair segment, global maritime security, ports, hinterland connectivity and human resource development.

With the exponential growth in the number of ships calling at Indian ports, providing ship-repair facilities is becoming an important opportunity for the industry. Ship-repair activity helps generate substantial local jobs and builds capacity in the local industry. Among the 326 ship-yards in China, 160 focus on ship-repairs, says the study.

Even though Indian shipyards enjoy a price advantage over many international shipbuilding yards, they lack the capability to build large and modern ships. At present the Kochi shipyard is the only one with the capability to repair and build large ocean-going ships.

While the Government has provided subsidy benefits to shipyards developing ocean-going vessels for exports, it needs to ensure that the benefits reach the private operators through effective procedures and policies that can help Indian players become globally competitive, says the study.

China, Japan and Korea are capable of developing highly sophisticated ships that meet international requirements. Indian ship-builders, by contrast, are good at making hulls but lack the capability to match foreign players in technology.

The Indian ship-building industry needs to focus on benchmarking efficiencies to international standards to improve delivery times, price and quality which, in turn, will enhance its competitiveness. Measures such as performance incentives and public private partnership (PPP) models could be introduced to improve efficiency.


Also, the report calls for simplified tax procedures and incentives to ensure the shipping sector is competitive. The taxation regime for shipping comprises multiple taxes (12 in all), including service tax and the fringe benefit taxes. These levies make Indian shipping businesses uncompetitive in comparison to international players, the study says.


Given the threats from terrorist activities globally, the implementation of global maritime security initiatives is necessary for ports to ensure continued integration with the world shipping and port trade. In 2005-06, major ports handled record traffic of 423.41 million tonnes, with a growth rate of 10.3 per cent over the previous year, according to Indian ports data. By 2013-14, to meet the projected traffic of 705.84 million tonnes at major ports, the capacity required has been estimated around 917.59 million tonnes.


Hinterland connectivity is a major bottleneck in the seamless movement and growth of multi-modal transportation.

It is crucial to improve road and rail connectivity by upgrading infrastructure to increase the load-carrying capacity and quality of roads as well as the capacity of railways to meet future traffic demand.


High-quality training imparted to maritime personnel has enabled the country to emerge as a major manpower supplier to world shipping. India has around 150 training institutes with four in the public sector and 146 in the private sector, capable of producing 11,164 seafarers (4,575 officers and 6,589 ratings) annually.

While the Government has identified training as a focus area, it is also necessary to address the need for imparting special skills in areas where ports face manpower shortages. These include areas such as crane operators, pilots and vessel traffic management system (VTS) operators.

Incentives should be provided to ports to invest in training infrastructure such as simulators. Plans should also be initiated to ensure retention of staff in key areas such as pilots, IT and VTS operations.

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