Shipowners For Easing Of Ecb Norms
Enhancement of depreciation to 40 per cent from 20 per cent, relaxation of restrictive ECB norms and income tax relief to seafarers are uppermost in the minds of the shipping industry as they await the forthcoming Union Budget.
"We are expecting the government to relax the ECB norms. This will enable us to access loans on OECD terms. We will be able to repay the loans in about eight and a half years," says P K Srivastava, chairman and managing director, Shipping Corporation of India, (SCI) which owns about half the national fleet.
This is a view that is echoed by P R Naware,vice-president and company secretary, Great Eastern Shipping Company, India's largest private sector shipping company. "We are expecting something to happen on the ECB front."
The present ECB guidelines stipulate that loans upto $15 million should have an average maturity period of three years. Loans more than $15 million are subjected to an average maturity period of seven years. "That one word `average' has created problems. It means that loans have to be repaid actually in about 10 to 14 years. This makes it very difficult to raise loans," says a senior shipping company official.
The pre-Budget memorandum submitted by the Indian National Shipownwers Association (INSA) points out another inhibiting factor in raising forex loans. Foreign currency loans from institutions in India can be raised at only 3 to 4 percentage points over Libor. Indian companies are able to raise forex loans abroad only 1.5 to 2 percentage points over Libor. Internationally even shipowners of a modest size can access loans at about 75 basis points over Libor. However, SCI due to its excellent credit rating abroad has recently raised a loan at 75 basis points over Libor. Rupee financing costs in India are in the vicinity of 20 per cent.Besides, INSA has also sought earmarking of $700 million annually for ship acquisition under the overall cap on ECBs.
The industry also strongly feels that it is discriminated against in the matter of depreciation. Its argument is that other modes of transport are granted this facility. The Union surface transport minister T G Venkatraman has recommended that the rate of depreciation be enhanced, said an INSA source.
INSA has contended in its memorandum that a depreciation rate of 40 per cent is justified due to the higher replacement cost of ships due to the capital intensive nature of the industry. Besides, ships also operate 24 hours in environmentally hostile conditions which entails considerable corrosion to hull and machinery. Tight international regulations regarding port state control and pollution too involve considerable expenses in safety and maintenance. "These expenses increase exponentially as the ships become older," the memorandum says. The higher depreciation would enable shipping companies to service debt, meet 30 per cent of costs of fresh acquisitions and also pay dividends.Another major demand of the shipping industry is income tax reliefs to seafarers.
Currently, to qualify for such reliefs Indian officers have to spend 183 days in foreign waters. This is extremely difficult as Indian ships keep returning to Indian ports for loading and unloading. This has resulted in the drift of Indian officers to foreign shipping lines. "Salaries paid by Indian shipping lines are on par with those paid by foreign shipping companies. However, income tax reliefs to officers employed aboard foreign vessels has resulted in an exodus," says an official with a shipping company.
Naware too demands "considerable relief" on taxation of crew. Venkatraman has also recommended this measure, according to INSA sources. The memorandum has also demanded that the shipping industry be granted infrastructure status.
"This will enable the industry to avail of various fiscal and financial benefits including a tax holiday", says Arun Mehta, managing director, Varun Shipping. INSA has also demanded that the industry be made eligible for availing finance from the proposed Infrastructure Development Finance Company (IDFC). The memorandum says this has become critical in view of the fact that SCICI which was the nodal agency for ship financing is being merged with ICICI. A sore point according to Mehta is MAT which he describes as a "regressive tax". Thanks to the imposition of MAT in last year's Budget, Varun which was a zero tax paying company came under the tax dragnet.
The other demand voiced by the shipping industry is restoration of Section 33AC deductions to 100 per cent of income derived from shipping operations and carried to a special reserve. It has also sought that these deductions be treated as eligible deductions before computing book profits under Section 115JA.The demand for infrastructure status, relaxation of ECB guidelines, enhancement of depreciation and tax concessions to seafarers have been voiced before. They have consistently fallen on deaf ears. It remains to be seen whether the industry's demands are addressed this time round.