IFSCA panel on ship leasing suggests adjustments to SEZ & GST legal guidelines

Pointing out that the prevailing “legal and regulatory framework” associated to ship leasing and financing actions in India is “less favourable” than international hubs similar to Panama, Dubai and Singapore, a report submitted to the International Financial Services Centres Authority (IFSCA) at GIFT City has advisable adjustments within the Goods and Services Tax (GST) and Special Economic Zone (SEZ) Act, 2005, to make the sector engaging.

“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 identified how prices of financing — borrowing and insurance coverage (hull, cargo, and safety and indemnity) — are unfavourably excessive in India in comparison with worldwide counterparts notably in London and Singapore that supply extremely aggressive charges.

“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 ready by the committee headed by Vandana Aggarwal, former senior financial advisor to the Central authorities. The different members of the 11-member panel are Mandeep Randhawa, Director, Ministry of Shipping, Nebu Oommen, ship surveyor, Directorate General, Shipping, Sandip Shah, IFSC division, GIFT SEZ Ltd, GVN Rao, Associate Professor of Law at Gujarat Maritime University, Kalpesh Vithlani, General Manager (Projects), Gujarat Maritime Board, Dipesh Shah, government director, IFSCA, amongst others.

Suggesting numerous adjustments, the report factors out that GIFT City in Gujarat doesn’t have seaports and so acceptable adjustments must be made to the SEZ legal guidelines to “exempt ship leasing and related business from bringing in goods physically into SEZ.” It additionally asks IFSCA to inform ports as SEZ for IFSC vessels and exempt ship leasing enterprise in IFSC from Net Foreign Exchange Earning requirement as ship leasing enterprise can’t be a Net Foreign Exchange earner in a five-year interval.

Seeking rest within the IFSC regime, the report suggests broadening the definition of “ship leasing” to incorporate bare-boat constitution, time constitution, voyage constitution, and so forth and asks the federal government to inform ship leasing as a “financial product”. Highlighting a few of the taxation challenges in India, the report states that abroad remittances from India are “cumbersome” and are topic to acquiring a chartered accountant certificates.

“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 additionally acknowledged Indian banks don’t have any unified coverage in direction of delivery and for many banks, delivery constitutes a really small proportion of the mortgage portfolio and a number of other of which have been NPAs. However, the report encourages banks to take up delivery. “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.