India is preparing its fledgling container fleet owners for competition from foreign carriers after the impending relaxation of cabotage laws.
It will do so by removing customs and excise duty on bunker fuels used in Indian-flagged ships for the transport of export-import (EXIM), empty, and domestic containers.
The bunker fuels covered under the exemption are IFO 180 CST and IFO 380 CST.
“This tax incentive for transportation along the coast will go a long way in enhancing Indian tonnage as well as in promoting development of transhipment hubs in India,” the shipping ministry told IHS Maritime.
The shipping ministry is weighing up various measures to promote the modal shift of cargo from roads to coastal waters, not only to decongest roads but, more importantly, to harness the higher fuel efficiency of coastal movements than for road haulage to reduce the carbon footprint.
“One of the issues hindering the growth of coastal shipping has been the levy of customs and central excise duty on bunker fuels which raises cost of transportation,” a ministry representative noted.
Indian ships carrying EXIM and empty containers were freed from customs and excise duty on bunkers in November 2014 but no local container lines availed of this exemption due to a lack of clarity on the government decision.
“To get this exemption from payment of duty on bunkers, an Indian container ship had to carry either EXIM containers or empty containers between two ports in India. But, there are no Indian ships that [exclusively] carry exclusive EXIM containers or empty containers. Local fleet owners didn’t want to get into any problem because of this,” the office of the directorate general of shipping, India’s maritime administration, told IHS Maritime.
India’s finance ministry rectified this last week by issuing a new order that allowed ships carrying domestic containers also to get duty-free bunkers.
Indian fleet owners have been opposing a government plan to relax cabotage laws and allow foreign container carriers to ply local routes, arguing that they lacked a level playing field.
“Indian shipping lines have to pay various taxes that are not paid by foreign shipping lines and this is what makes the latter competitive. Rather than relaxing cabotage restriction, either the foreign shipping lines should flag in India and pay the taxes paid by the Indian shipping lines or the taxes on Indian shipping lines should be waived,” a representative of Shipping Corporation of India told IHS Maritime.