The Financial Express

High taxes throttle ocean-going vessel industry's growth

| Updated: February 05, 2018 23:19:33

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BEXPETRO, a vessel of Beximco Petroleum Limited, seen in this internet photo. BEXPETRO, a vessel of Beximco Petroleum Limited, seen in this internet photo.

High tax incidence and lack of incentives hinder business expansion of national flag-carrier vessels with a resultant loss of Bangladesh's market share to foreign shippers in international trade, businesses say.

They said a huge amount of hard-earned foreign currencies are going out of the country as freight cost of importing goods for neglecting expansion of domestic shipping operations.

Bangladesh Oceangoing Shipowners' Association (BOGSOA) in a recent letter to Finance Minister AMA Muhith made an appeal for waiving advanced income tax (AIT) on vessel imports and on earnings in foreign currencies, and providing incentives to the sector as provided to the apparel industry.

Sources said the association president, Azam J Chowdhury, recently met the finance minister at his office and urged him to help the sector for flourishing.

Talking to the FE recently, Mr Chowdhury said in 1994 Bangladesh oceangoing-vessel industry was declared 'service industry' through a gazette notification by the Ministry of Industries. The notification said the sector will enjoy benefits and incentives like export- oriented industry.

However, the sector was not given any such benefit. Rather it was forced to pay high amounts of money as taxes compared to others. As a result, many of the ship owners incurred losses and opted out of the business.

He said in importing a vessel the buyer needs to pay 5.0 per cent AIT, 15 per cent VAT (value-added tax), and some other taxes, altogether coming to nearly 27 per cent immediate tax incidence on this high-capital-intensive business.

"If a businessman buys a vessel worth US$20 million, he needs to pay another $7.0 million as taxes, which is a big burden for the industry," Mr Chowdhury said.

In the letter to the finance minister, he wrote that vessel owners have to pay 35 per cent corporate tax and 5.0 per cent freight tax while many of the export-oriented industries pay almost nothing on this account.

He mentioned that in fiscal year 2015-16 the total import-export volume of the country was nearly 71 million tonnes. Some Tk 400 billion had to be paid in freight charges against those export-import consignments.

Mr Chowdhury noted that presently there are some 33 national flag-carrier oceangoing vessels which can transport nearly 10 per cent of total export-import cargos annually.

"If a friendly environment can be created through the tax waivers, many will be interested to invest in this business and earn a big amount of foreign currency," he told the FE.

"An oceangoing vessel can earn foreign currencies three times higher than the cumulative incomes of some 20 garment factories," said Mr Chowdhury, who is also chairman of East Coast Group.

He made a strong plea that interests of the national flag carriers ought to be protected as the government is drafting Bangladesh Flag Vessel (protection) Act 2017 by amending Bangladesh Flag Vessel (protection) Ordinance 1982.

He said in the proposed act the share for Bangladesh flag vessels in overseas cargo carrying needs to be raised to 60 per cent from the existing 40 per cent.

Presently, the sector earns $200 million in foreign currency which over the next four years could be raised to $1.0 billion if the tax burdens were lifted, the businessman noted.

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