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Service tax reduction likely for inland shipping
April, 29th 2011

Transport of goods through coastal and inland shipping may get cheaper, as the finance ministry is planning to increase service tax abatement for the sector. A higher abatement is being proposed to bring some parity in levy of service tax on movement of goods through road, rail and shipping.

The service tax on shipping was introduced in Budget 2009-10. In Budget 2011-12, the government provided an abatement of 25 per cent on transport of goods through coastal and inland shipping.

Shipping secretary K Mohandas has now written to the finance ministry, asking for higher abatement. We are considering the proposal to increase abatement for coastal shipping. We want to promote coastal shipping because it is an energy-efficient, environment-friendly and economical mode of transportation of goods, said a finance ministry official, who did not wish to be identified.

The industry has been asking for uniformity in service tax abatement between shipping and other transportation modes such as road and rail.

The finance ministry gives 75 per cent abatement in case of road transport. It has also provided 70 per cent abatement for the railways.

Service tax on rail freight, however, is yet to come into force, as the finance ministry had again deferred its introduction, till June.

The official said the abatement could not be as high as 75 per cent and the finance ministry could increase it to only 35 per cent.

This would mean a coastal operator would have to pay service tax at 10 per cent on 65 per cent of the total freight value, compared with a road operator, who would pay service tax on 25 per cent of the freight value.

The finance ministry has asked the shipping ministry to provide data on the cost of services involved in transporting goods from one place to another through coastal and inland shipping.

We want to know the cost of service element in shipping. Our analysis said it is about 75 per cent. That is why we gave only 25 per cent abatement. If they say it is less and substantiate it with relevant data we will give them abatement accordingly, the official added.

In its vision document for the next 10 years, the shipping ministry had set a target of increasing port capacity to around 3,200 million tonnes, with an investment of about Rs 3 lakh crore.

It has proposed to enhance the Indian tonnage four-fold by 2020, improve Indias share in global shipbuilding to five per cent and increase the share of Indian seafarers to at least 10 per cent.

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