Mercator Lines Ltd, Indias second biggest private shipping firm, has registered more vessels outside the country in a bid to skirt tight local regulations while trying to reap the benefits of tonnage tax, a levy based on the cargo capacity of ships that reduces maritime companies tax burden.
The Mumbai-based firm has registered four dredgers, which it purchased in the past year, in the Comoros, an island nation in the Indian Ocean off the eastern coast of Africa, said an official at the directorate general of shipping, the maritime regulator.
In early June, Mercator registered a newly acquired crude tanker in the Marshall Islands, a tax haven, said the same official, who declined to be named. All the ships have been registered outside India directly, without opening a subsidiary in either Marshall Islands or the Comoros.
By doing this, Mercator can hire officers and crew from any part of the world, unlike ships registered in India, which have had to employ only Indian nationals. Last week, the regulator eased the clause on hiring only Indian nationals, but ship owners say strict conditions still apply to employment of foreigners.
As for the tonnage tax, ships and dredgers registered outside India are not eligible to claim benefits under the scheme introduced in April 2004 as a substitute for corporate tax. More than 90% of the global shipping fleet operates on tonnage tax, where the tax burden is just 1-2% of the operating revenue, much lower than the 30% under corporate tax.
Tonnage tax benefits are available only to ships registered in India. However, a ship owner can claim tonnage tax on ships hired from within India or abroad, subject to a ceiling not exceeding 49% of their owned shipping capacity.
For instance, if a shipping firm owns ships totalling a cargo carrying capacity of 100 million dead weight tonne (dwt), it can hire an additional 49 million dwt from others and claim tonnage tax on 149 million dwt.
Because Mercator has registered the five vessels outside India, the shipping firm cannot claim benefits under the tonnage tax scheme. It also cannot claim tonnage tax for these ships under the hired ships category, because they have been directly registered abroad by the Indian company without floating a subsidiary.
As such, the income from these ships will be subject to tax under the normal provisions of the corporate tax and taxed at 30%, said an official who looks after taxation matters at state-owned Shipping Corp. of India Ltd, but who did not want to be named.
Still, legal experts say Mercator can hire its own ships registered abroad even though it was done without floating a subsidiary.
The licensing norms of the regulator says Indian ship owners can hire foreign registered ships. So, Mercator can hire its own ships registered abroad even though the registration was done without floating a subsidiary, said A. Majumdar, partner at shipping law firm Bose and Mitra and Co. Mercator is seeking special permission such as a general purpose trading licence from the director general of shipping so that these vessels can be treated as Indian ships, according to the official.
If Mercator succeeds, it can claim benefits of the tonnage tax and, at the same time, skirt the stiff rules and regulations set by the maritime regulator for ships registered in India. It would also be free from 12 different taxes applicable for such ships.
Director general of shipping Kiran Dhingra could not be reached for comment. Her office said she was on personal leave till 27 August. A spokesman for the regulator, as well as a Mercator spokesman, declined to comment.
You have to address your questions to the maritime regulator, said a shipping ministry official who did not want to be named. Powers have been delegated to the director general of shipping, who is the custodian of the Merchant Shipping Act. We will look at it when it comes to us, he added.