17.11.2021-IFSCA panel on ship leasing suggests changes to SEZ & GST laws

Pointing out that the existing “legal and regulatory framework” related to ship leasing and financing activities in India is “less favourable” than global hubs such as Panama, Dubai and Singapore, a report submitted to the International Financial Services Centres Authority (IFSCA) at GIFT City has recommended changes in the Goods and Services Tax (GST) and Special Economic Zone (SEZ) Act, 2005, to make the sector attractive.

“Financing and insuring ships is a specialised area. Indian agencies (banks, insurance companies, pension funds, alternate capital and others) lack exposure to maritime finance and insurance and hence, tend to be non-risk takers or impose lengthy, time-consuming procedures,” states a report by a committee constituted by IFSCA on June 24, accessed by this paper. It pointed out how costs of financing — borrowing and insurance (hull, cargo, and protection and indemnity) — are unfavourably high in India compared to international counterparts notably in London and Singapore that offer highly competitive rates.

“Besides, India’s tax regime, by and large, are not encouraging to the shipping industry and are not on par with tax regimes of Singapore, Malta, Cyprus and Panama, where the majority of the international carriers are registered… Similarly, GST provisions on shipbuilding, ship managing, bunkering, repairing, etc are skewed in favour of foreign entities, rendering Make-in-India unattractive,” added the report prepared by the committee headed by Vandana Aggarwal, former senior economic advisor to the Central government. The other members of the 11-member panel are Mandeep Randhawa, Director, Ministry of Shipping, Nebu Oommen, ship surveyor, Directorate General, Shipping, Sandip Shah, IFSC department, GIFT SEZ Ltd, GVN Rao, Associate Professor of Law at Gujarat Maritime University, Kalpesh Vithlani, General Manager (Projects), Gujarat Maritime Board, Dipesh Shah, executive director, IFSCA, among others.

Suggesting various changes, the report points out that GIFT City in Gujarat does not have seaports and so appropriate changes needs to be made to the SEZ laws to “exempt ship leasing and related business from bringing in goods physically into SEZ.” It also asks IFSCA to notify ports as SEZ for IFSC vessels and exempt ship leasing business in IFSC from Net Foreign Exchange Earning requirement as ship leasing business cannot be a Net Foreign Exchange earner in a five-year period.

Seeking relaxation in the IFSC regime, the report suggests broadening the definition of “ship leasing” to include bare-boat charter, time charter, voyage charter, etc and asks the government to notify ship leasing as a “financial product”. Highlighting some of the taxation challenges in India, the report states that overseas remittances from India are “cumbersome” and are subject to obtaining a chartered accountant certificate.

“Gains arising on transfer or sale of vessels or transfer and sale of partnership interests or shares of SPV holding the vessels, attract capital gains tax,” it added.

The committee also stated Indian banks have no unified policy towards shipping and for most banks, shipping constitutes a very small percentage of the loan portfolio and several of which were NPAs. However, the report encourages banks to take up shipping. “It is strongly felt that it is time that Indian banks also explore the lucrative options of lease financing for India-IFSC ship owners and ship operators. Many enterprises are now medium-sized and have a good track record of operating ships. They have the necessary market information and expertise to operate vessels commercially,” the report added.

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