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TONNAGE TAXATION
MADE BYNAME MANISH AGARWAL ROLL NUMBER 602 ROOM NUMBER-32
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INDEX
TOPIC 1. Introduction 2. Basic Features 3. Shipping Industry demanded Tonnage Tax System 4. Tonnage Tax Scheme 5. Benefits 6. More on Tonnage Tax 7. Reference
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INTRODUCTION
Tonnage means the size or carrying capacity of a ship measured in tons. In another words shipping considered in terms of total carrying capacity. The tax on tonnage was introduced by the Mr. Jaswant sinha in 2003 2004 in the interim budget. With the introduction of the tonnage tax, the Government not only met a long-standing demand of the shipping industry, but also created an atmosphere that enables Indian lines to compete successfully against their rivals anywhere in the world. In other words, it was introduced to make the Indian shipping industry more competitive. Moreover, a tonnage tax scheme for taxation of shipping profits has been introduced. Many maritime nations have introduced tonnage base taxation. Tonnage tax is a new ring-fenced regime allowing companies to elect (on a group wide basis) to have their taxable profits from shipping activities determined at fixed rates by reference to the tonnage of their ships, rather than by reference to variable business results. After the initial understanding of the Tonnage tax I am mentioning some of the basic features of the tonnage tax.
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BASIC FEATURES
Basic features of the tonnage tax scheme are as follows: It is a scheme of presumptive taxation whereby the notional income arising from the operation of a ship is determined based on the tonnage of the ship. The notional income is taxed at the normal corporate rate applicable for the year. Tax is payable even if there is a loss in a year. A company may opt for the scheme [Form no. 65] and once such option is exercised, there is a lock in period of 10 year. If a company opts out, it is debarred from re entry for ten years. Since this is a preferential regime of taxation, certain conditions like creation of reserves, training, etc. are required to be met. A company may be expelled in certain circumstances Since our country has followed this taxation to open up the opportunities, we need to have a brief knowledge of the international tax regime for the same.
An overview of the international tax regime in the shipping sector The world over, maritime countries have adopted various fiscal regimes to encourage the development of their respective shipping industries. European countries, including the UK, have provided for a tonnage tax scheme to reduce the net effective taxation rates for the domestic shipping industry to as low as 1% or 2%. In 2002, in order to provide much- needed boost and a level playing ground to the Indian shipping industry, the Ministry of Shipping constituted an expert advisory committee, headed by Dr. Rakesh Mohan. Therefore, The Government of India introduced the Tonnage Tax Scheme (TTS) in the Finance Act, 2004, with the intent of making the Indian shipping industry globally competitive.
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The introduction of the Tonnage tax has its roots in the demands put up by the Shipping industry. Let us see what they demanded from the Government:
Exceeding 1,000 but not more ` 460 + ` 35 for each 100 tons than 10,000 exceeding 1,000 tons
Exceeding 10,000 but not more ` 3,610 + ` 28 for each 100 tons than 25,000 Exceeding 25,000 exceeding 10,000 tons ` 7,810 + ` 19 for each 100 tons exceeding 25,000 tons
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The option for tonnage tax is being offered to the shipping industry in order to create a positive fiscal environment for shipping in line with other major maritime countries. This will play a key role in delivering the Governments wider objective of reversing the decline in the UK fleet.
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(a) Income earned on investments linked to the mandatory reserve A tonnage tax company is statutorily required to transfer at least 20% of the book profits arising from its shipping business to a reserve account. This account has to be utilized toward the acquisition of ships. (b) Capital gains In the shipping industry, it is essential to replace old and obsolete vessels and upgrade vessels with newer technology. Accordingly, the qualifying vessels are required to be sold as a part of the shipping business. SHORT CONCLUSIONIn short I can say that this system of tax has put our shipping industry at par with the international shipping activity and we hope that over a period of time it will help them growing in a better way.
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