The recent Budget proposal to levy excise duty and additional duty of Customs (ADC) on import of ships is likely to have an adverse effect on the acquisition plans of shipping companies, according to Exim News Service.

The proposition has come about at a time when prices of new assets have plunged substantially over the last two years, encouraging shipping companies to expedite their buying plans.

Shipowners have made a plea to the Finance Ministry to roll back the levy, on the pretext that the industry is already saddled with numerous taxes.

The Finance Minister, Mr Pranab Mukherjee, had also made a proposal in the Budget to withdraw the exemption of excise duty on 130 items "that are mainly in the nature of consumer goods", to pave the way for transition to the Goods and Services Tax (GST).

With import of ships being added to the list, shipowners will have to bear an extra nine per cent as excise duty and the corresponding ACD (at five per cent according to tariff and one per cent where no input credit has been availed). As a result, the special additional Customs duty exemption that was earlier available on import of ships will not be available now, which, in turn, could mean an added burden of four per cent.

A shipping company official pointed out that even though new ships were available at a lower price, the additional duty would surely make acquisitions much more expensive and even unviable. "The industry may have to review its acquisition plans if this is not reversed," he feels.

In fact, shipping firms were at first delighted by the proposal in the Budget to grant exemption from Customs duty on import of spares for ship repairs.

But after minutely going through the fine print, it dawned on the shipowners that the levy of excise duty and the corresponding ACD more than wiped out the benefit of this duty exemption.

The industry fears that the levy of new duties could put it at a disadvantage compared to its overseas counterparts as most shipping firms had lined up major expansion plans.

For instance, the Shipping Corporation of India (SCI), which owns nearly 35 per cent of India's flagged tonnage, has plans to acquire 62 vessels, having already on order 32 ships.

Likewise, the Essar Group is in the process of pumping in $1.1 billion to acquire 12 new vessels in the next two years, including two Capesize vessels that are joining the fleet this fiscal. The company has on order six new mini Capesize vessels and six Supramax dry bulk carriers that are expected to be delivered in the next fiscal.