Ministry seeks 20-year tax break for shipping companies

Wants extension in tax and duty exemptions from 2020 to 2040

Zafar Bhutta June 16, 2019

ISLAMABAD: The government is likely to extend tax exemptions on the import of ships, floating crafts and survey vessels by shipping companies.

According to the existing policy, ships and all floating crafts including tugs, survey vessels and other specialised crafts purchased or bareboat chartered by a Pakistani entity and flying Pakistan flag are exempted from payment of all import duties and surcharges up to 2020.

The Ministry of Maritime Affairs has sought extension in the tax exemptions for another 20 years from 2020 to 2040 in order to protect the national flag carrier Pakistan National Shipping Corporation (PNSC).

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"The government has constituted a ministerial committee to look into the impact of tax exemptions for the next 20 years," a senior government official said.

PNSC needs protection and promotion through preferential measures, which is a globally accepted practice widely in vogue in several countries including the US, Turkey, South Korea, India and others.

The United Nation's Framework for Development of National Shipping Policies recognises that such policies contribute to long-term stability of a nation and can be used as a means of increasing global trade.

In order to promote the maritime sector, the government of Pakistan announced the Merchant Marine Policy 2001 to provide incentives for investment in the shipping industry.

Salient features of the policy, which was published on August 11, 2001, included tax exemptions on the import of ships into Pakistan.

According to the Ministry of Maritime Affairs, under the existing taxation structure for resident shipping companies, the incentives provided by the government through the Merchant Marine Policy and Finance Bill 2016 are available till 2020.

After their expiry, the income of shipping companies will be taxed at normal rate, and customs duty and sales tax will be imposed again, which will not only hamper growth of the shipping industry but will also discourage capital investment in the sector.

The imposition of taxes and duties, according to the ministry, will have an adverse impact on the liquidity position of resident shipping companies, thus barring any procurement of vessels from their own resources for strategic shipping requirement of the country as shipping being capital-intensive requires commercial loans for acquisition.

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It would also prevent any future acquisition of ships by PNSC or any potential resident shipping companies, it said. Moreover, it will impact negatively and deter the entry into market of private-sector shipping companies.

The maritime ministry recommended to the government that relief in taxable income in the form of tonnage tax and exemption from sales tax, customs duty and withholding tax on the purchase of ships be extended from 2020 to 2040 in order to prevent the adverse impact of imposition of taxes and duties on the shipping industry of Pakistan.

Published in The Express Tribune, June 16th, 2019.

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