Govt Proposes 14% Service Tax on Shipping Companies Importing Goods

In a bid to discourage imports of goods, Finance Ministry Arun Jaitley in the Union Budget for financial 2016-17 (Apr-Mar) has announced the imposition of a 14% service tax on services provided by domestic shipping companies transporting goods from outside India.

“The service tax on services provided by shipping companies by way of transportation of goods by a vessel from outside India up to the customs station in India will be 14% with effect from 1 June 2016,” said the Budget.
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However, industry officials are of the view that though the move is directed towards discouraging imports, it will mainly impact the logistics sector and largely the end-user division as shipping companies will be simply passing on this cost.

“The move of 14% service tax is negative but will not impact shipping companies directly as it will be passed on to the end-user,” said Vikram Surayavanshi, senior analyst with Philip Capital.

Shipping Corporation of India, Mercator, and Great Eastern Shipping among others are some of the top domestic shipping companies.

Meanwhile, shipping companies engaged in export assignments will be allowed the input tax credit, a move to encourage the export of goods, one of the crucial parts of the ‘Make In India’ initiative kick-started by the government.

“Services provided by Indian shipping lines by way of transportation of goods by a vessel to outside India being zero rated with effect from 1 March 2016,” said the Budget.

“The move about input tax credit is in line with industry expectations as it will improve the competitiveness of Indian flag companies as against the foreign flag vessels,” said S Hajara, former chairman of the Shipping Corporation of India.

Keeping the heavy balance sheets and drying toplines of domestic shipbuilding companies in mind along with the future prospects for them to attract orders mainly from the navy and defense division, the budget has exempted the shipbuilding company from excise duty on capital goods and spares thereof, raw materials, parts, material handling equipment and consumable for repairs of ocean-going vessels.

“This move is going to make shipbuilding more competitive and shipping companies will be encouraged to place orders or repairs with domestic repair units,” said Bhavesh Gandhi erstwhile promoter of Reliance Defence Systems. “This kind of a change will have a positive impact on the shipbuilding industry from the medium-to-longterm perspective,” he added.

ABG Shipyard, Reliance Defense Systems, and Bharati Shipyard—currently with asset restructuring company Edelweiss have been reeling under huge debt and diminishing toplines for several quarters due to the unfriendly business climate not just in India but across the globe.

The coastal shipping industry, however, remained disappointed as no incentive schemes were announced for this segment.

“There was absolutely nothing for the coastal division. When the ministry is planning to make a shift of transportation from road to sea and can even announce a slew of measures for the road sector, is unable to do anything for the coastal division which is supposed to be the cheapest mode of transport,” said Kiran Kamat, managing director at Link Shipping & Management. “We are disappointed with this budget,” he added. The sector has been looking for incentives as the Centre had promised to provide an incentive of Rs.3,000 per car to those using the coastal route.

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