The ship-owners wants more incentives

April 22 - 28, 2002

The announcement made by the government offering incentives of fundamental importance to the private sector for investment in the shipping sector has, surprisingly, not evoked any enthusiasm in the concerned circles.

It is now almost 2 week that the Central Board of Revenue (CBR) issued two SROs which will exempt ships and all floating craft up to 2020 from payment of all import duties and surcharges, provided those are used for the purpose for which they were procured. By any standard the incentives offered are unprecedented, it has not received any favourable or welcome response from the shipping industry.

One reason for this subdued response may be the inordinate delay in announcing these measures which were included in the shipping policy approved and announced by the government about a years back. The CBR has taken almost a year in implementing the first and most important part of the shipping policy. The two SRO issued by the CBR include SRO No. 180(1)/2002, according to which ships and all floating craft including tugs, dredgers, survey vessels and other specialised craft purchased or bare-boat chartered by a Pakistani entity and flying the Pakistan flag shall be exempt upto 2020 from payment of all import duties and surcharges provided these are used for the purpose for which they were procured. ii) SRO 188(1)/2002, amending second schedule to Income Tax Ordinance, 979 (XXXI of 1979) to provide for revision of presumptive income tax in the case of resident person engaged in the business of shipping, in the following manner.

a) ships and all floating craft including tugs, dredgers, survey vessels and other specialised craft purchased or bare-boat chartered and flying Pakistan flag shall pay a tonnage tax of an amount equivalent to one US$ per gross registered tonnage per annum; and

b) ships, vessels and all floating craft including tugs, dredgers, survey vessels and other specialised craft not registered in Pakistan and hired under any charter other than bare-boat charter shall pay tonnage tax of an amount equivalent to fifteen US cents per tonne of gross registered tonnage per chartered voyage provided that such tax shall not exceed one US$ per tonne of gross registered tonnage per annum.

It may be recalled here that the shipping sector, which was the exclusive domain of the public sector since 1972, was thrown open for the private sector in 1991 with necessary policy outlines. A number of applicants with plans to establish shipping companies were granted permission by the then government. But the pace of investment from the private sector remained markedly slow. Only a few companies were registered having two to three ships only. Much progress in this direction could not be made because the investment required to be mobilised by the privte sponsors was understandably very sizeable while loan facilities were hardly available from the DFIs, and foreign investment interest also largely kept to the side lines. At the same time, the local sponsors were also discouraged by certain mandatory requirements in the policy. Moreover, relatively high rates of import duty on ships combined with other conditions which were not acceptable to the investors, prevented private investors both local and foreign, from participating in the development of shipping industry.

It sounded highly encouraging when, after a prolonged neglect, the present government announced on incentive laden shipping policy to boost shipping business. The private sector was invited to avail the offered opportunities and play an active role for reviving the shipping sector under the liberalised policy of the government. It was expected that the successful implementation of the policy will hopefully generate considerable economic activity and result not only in reducing 1 billion freight charges but also generate more revenue, not only on international lines but also through in-land transportation keeping in view the government's keen interest to develop new ports such as Gwadar and modernise and expand existing ports.

But the expectations have not proved to be based on correct assessment. A newspaper report quoting Masood Baghpatee, himself a shipping enthusiast, and Vice Chairman of FPCCI Standing Committee on Ports and Shipping, makes it appear that seemingly dissatisfied with duty withdrawal alone, the ship-owners want a great deal more.

Dismissing the incentives now announced by the CBR simply as part of the shipping policy announced by the government last year he pleaded for incentives that would bring the national shipping industry on part with those available in flag of convenience countries like Malta and Panama, to which he said some of the Pakistani ship-owners have already moved. As to the government's reaction to apparent, indifference of the industry, an idea of this may be had from the call Communication Ministry Secretary Iftikhar Rashid has made to potential investors and stakeholders to come forward and to play an active role in reviving the national shipping policy. Presiding over a high level meeting on ports and shipping in Islamabad, the other day, he recalled that the shipping policy which emerged from extensive consultation with all the stakeholders and elicitation of public opinion, seeks among other things, enough expansion of the merchant marine fleet to boost its share in the country's sea-borne trade from bare 5 to an impressive 40 per cent. Referring to numerous measures earlier announced, he made special mention of fundamental incentives now provided by the CBR as proving instrumental in invigorating the national shipping industry.

There can, of course, be no disputing the cumulative advantage accruing to the industry from various measures, but it will be noted that their manifestation will take quite some time to make the big difference felt. This should become evident from a combination of short-term and long-term factors, the very thought of whose interplay would certainly inspire ideas of fabulous growth of the industry. The waiver of duty, followed by cut in foreign exchange expenditure on freight charges and repair of ships, upgradation of training and supportive facilities, augmentation of domestic ship-building capacity, increase in repair facility together with prospects of deregulation and simplification of provisions for operating under foreign flags, are fascinating ideas. But the tremendous pace at which the international shipping is forging ahead, it is going to remain handicap race for the national shipping industry which will need catching up with the competitors all the time, in view of the ongoing hightech revolution. It will thus be seen that if a fast changing world environment transforming tomorrow's hopes in today's realities, the incentives now announced will leave a great deal to be desired in real terms. This should be all the more so from Baghpatee's pointed reference to the disillusioned shipowners making their way to countries offering attraction of better prospects of profit without any long wait.

There can be no two opinions about the multi-directional effort the present government has been making for retrieval of the economy from deep down it had struck from the bungles and blunders of the past governments. There has been a visible change for the better in almost every sector of the economy. A great deal has been done to create an investment friendly environment. However varying impediments to investment continue to be there even in areas of proven profit. It's true that investment is invariably guided by perception of assured profit, though mingled with ideas of varying deregees of risk which the potential investors are willing to take. However, uncertainties of varying nature have continued a subduing investment activity. And shipping industry, as necessitating enormous capital investment, should have its own understandable reason in looking for more and more incentives to inspire ideas of proportionate risk-taking. It will be in the fitness of things, therefore, to make a thorough reappraisal of the requirements of existing and potential investors, for a flourishing shipping industry.