ISLAMABAD: The government has approved a tax incentive for new Pakistani resident ship-owning companies in a bid to boost the shipping sector.
However, this plan may hit a snag as the Pakistan Tehreek-e-Insaf (PTI) government has given monopoly to Pakistan National Shipping Corporation (PNSC) on all transportation of imported gas and petroleum products.
State-run oil and gas companies will give priority to PNSC in transporting oil and liquefied natural gas (LNG), as per the government’s recent decision. “In such a scenario, private shipping companies have little space to capture business,” an official told The Express Tribune.
The government has decided that the new Pakistan resident ship-owning companies will be incentivised and pay tonnage tax of $0.75 per gross register tonnage (GRT) annually for the first five years of shipping operations of each individual vessel inducted by them subject to the cut-off period ie till 2030.
After five years, the Pakistan resident ship-owning companies will pay $1 per GRT annually on the vessels’ shipping operation income. However, PNSC will continue to pay tonnage tax of $1 per GRT annually on its shipping income.
A Pakistani resident ship-owning company shall be defined as a company registered with the Securities and Exchange Commission of Pakistan and has its own seaworthy vessels registered under Pakistan flag. The shipping sector will be classified as a strategic industry.
The Economic Coordination Committee (ECC) of the cabinet had constituted a committee headed by the minister for maritime affairs. The committee came up with revised recommendations along with the mechanism for implementation of the proposals.
The committee recommended tax exemptions from 2020 to 2030 on the import of ships and vessels. The maritime ministry had earlier sought these tax exemptions from 2020 to 2040.
The committee recommended that no federal taxes including direct and indirect taxes should be levied to the detriment of Pakistan resident ship-owning companies during the exemption period. No preference would be given to PNSC in private-sector cargo, it said.
The government has granted exemption from general sales tax and customs duty on the import of ships subject to vetting by the Law Division. The committee also recommended that government organisations and state-controlled enterprises should be directed to strictly abide by the cargo preference requirements for PNSC.
Hydrocarbon cargoes, imported by government organisations and state-controlled enterprises including petrol, high and low sulphur fuel oil, high-speed diesel, liquefied petroleum gas, crude oil and coal, should be imported on free on board (fob) basis through PNSC-owned vessels or PNSC-chartered vessels and freight should be paid in Pakistani rupees as per the present mechanism subject to changes with mutual consent, it said.
Mechanism for implementation
PNSC will enter into a joint venture arrangement for up to five years with international LNG shipping companies when awarded long-term contracts. During this period, PNSC shall develop internal expertise and capacity for LNG shipping.
By the end of this period, PNSC shall acquire its own vessels for self-sufficiency in this trade in accordance with international standards and commercial requirements. Pakistan flag vessels will be given priority berthing at all Pakistani ports.
The ECC approved all these recommendations subject to vetting by the Law and Justice Division.
Published in The Express Tribune, July 12th, 2019.