IFSC regime gains traction among ship owners
GANDHINAGAR : A new tax-friendly regime to boost India’s shipping tonnage is gaining traction in a short span with the Ripley Group, Bothra Group, Star Matrix, Alphard Maritime Group and Propel Shipping, among the eight that have registered under the International Financial Services Centre (IFSC) Authority in Gujarat, seeking to tap this avenue to access Indian cargo.
The IFSC Authority is also said to be wooing the Adani Group, Tata Group, ArcelorMittal and GMS Inc, among others, to IFSC, by offering a tax structure that the shipping industry say is “equal to or better than Singapore”.
“IFSC is a very good regime,” said an executive with one of the country’s top fleet owners. “They have made a structure which is equal to or better than Singapore for tax, especially for accessing Indian cargo,” the executive said, adding that his company was “exploring the possibility of setting up a unit in IFSC to see if it makes sense”.
“We are exploring because it is at a very nascent stage. If it makes sense, we will put vessels there also,” he added.
Being treated as an offshore special economic zone in India, IFSC has tax and regulatory benefits – the goods and services tax (GST) does not apply for import of vessels, entities operating from IFSC are considered non-resident from FEMA perspective facilitating ease of doing business and ECB norms are not applicable to IFSC entities, making borrowings easier.
The most attractive feature, though, is the ten-year tax holiday available to IFSC companies.
“IFSC entities can take a tax holiday in any ten of the first 15 years. After that they can stay in the IFSC as a tonnage tax company and enjoy the same tax benefits that are currently available to fleet owners operating in the domestic tariff area (DTA) regime,” the executive stated.
“And that you can use after ten years because in those ten years, there is zero tax,” he said.
Tonnage tax is a levy based on the cargo carrying capacity of ships compared to the corporate tax regime.
“The current regime in IFSC provides parity for India based tonnage to other jurisdictions, allowing for Indian capital to be deployed in India and eventually providing a base for global operators to base operations in India. With a large market and talent base, India is the natural choice to base global and regional shipping operations,” said Mr. Amit Oza, Director, Astramar Shipping & Trading Services based in Ahmedabad.
On 5 October, the Directorate General of Shipping, amended the priority sequencing of a so-called right of first refusal (RoFR) accorded to local shipping companies in public tenders following the arrival of a new category of fleet owners domiciled in the Gujarat International Finance Tec-City (GIFT City), India’s first International Financial Services Centre (IFSC) under the Special Economic Zone Act.
The right of first refusal – a government-mandated cargo support policy for domestic fleet owners – was last amended in January 2021 to link it to the ‘Make in India’ initiative and drive demand for ships built locally.
With the rejig, the top priority for exercising the RoFR will be given to Indian built, Indian flagged and Indian owned ships followed by Indian built, Indian flagged and Indian IFSC Authority owned vessels.
The second priority will be granted to foreign built, Indian flagged and Indian owned ships followed by foreign built, Indian flagged and Indian IFSC Authority owned vessels.
The third priority will be given to Indian built, foreign flagged and foreign owned ships.
All ships registered with IFSC Authority have to fly the Indian flag after which they can do coastal runs also.
In July, the Ministry of Commerce and Industry issued a gazette notification that exempted IFSC tonnage from the stipulation of calling at an Indian SEZ port on coming to India first after registering under the IFSC Authority to avoid payment of Integrated Goods and Services Tax or IGST.
Since India does not have an exclusive SEZ port, Ripley’s first ship ‘Ripley Pride’ called at Krishnapatnam Port (a non-SEZ port) first on arriving in Indian waters with the help of this exemption. The second ship ‘Ripley Progress’ docked first at Mormugao Port, also a non-SEZ port.
So far, eight entities have sought approvals to start ship leasing business from IFSC, out of which four have been granted registrations while the balance have been given provisional or in-principle registrations, an IFSC Authority official said.
The four companies that have secured approvals and registered with the IFSC Authority have leased six ships so far with more in the offing, the official said.
Of the four registered entities, Ripley Shipping India IFSC Pvt Ltd, Panbulk Shipping India IFSC Pvt Ltd (from the Ripley Group) have leased one ship each – both Panamax bulk carriers in July and August respectively – while Singapore-based Jaldhi Overseas Pte Ltd (a part of the Bothra Group), has brought one dry bulk ship, also a Panamax vessel.
Ripley Group, promoted by Shoumik Bose, plans to add one more ship under IFSC by March, sources said. Panbulk Shipping is based out of the Dubai Multi Commodities Centre (DMCC), UAE’s largest free trade zone.
Jaldhi Overseas has incorporated Jal Kumud IFSC Pvt Ltd to own the Panamax bulk carrier ‘Jal Kumud’.
“Jal Kumud is owned by the IFSC entity and is awaiting Customs clearance,” a person familiar with the matter said.
Jal Kumud IFSC Pvt Ltd will likely put at least 1-2 ships more under the IFSC regime, an official said. Jaldhi Overseas has ordered some 13 new ships comprising dry bulk, tankers and gas carriers, which will be delivered from 2026 onwards.
“In the next couple of years, we may try to put 1-2 ships in IFSC,” an executive with Jaldhi Overseas said.
Others that are said to have applied to set up shop in IFSC includes Star Matrix Ltd, a company run by Sanjeev Jain and his son Siddhant, focussing on offshore fleet (deep sea anchor handling tugs) and ship recycling, based in Hong Kong.
Alphard Maritime Group, promoted by Captain Alok Kumar, with offices in Singapore, Dubai and Greece is also understood to have sought approval to operate from IFSC.
Propel Shipping Pte Ltd, a dry bulk ship operator based in Singapore, is also said to be among the entities that have applied for registration. It is a part of Gandhidham, Gujarat-based ACT Group that provides sea trade and logistics solutions.
Star Matrix, Alphard Maritime Group and Propel Shipping are said to have secured provisional/in-principle approvals from the IFSC Authority to undertake business.
“Those who were granted provisional registrations have to complete the documentation and bring in capital before starting operations,” the IFSC Authority official said without disclosing the names of the entities that have been given provisional approvals to start ship leasing business from IFSC.
A common thread that runs through all those who have so far applied for registration under IFSC Authority, including the four that have been granted approvals, four waiting for final approvals and potential targets such as the Adani Group, the Tata Group, ArcelorMittal and GMS are their Indian connections: all of them are either owned by Indian business groups or promoted by Indians.
Dubai-based Global Marketing Systems Inc (GMS), promoted by Dr Anil Sharma, is the world’s largest buyer of ships and offshore assets for recycling. GMS also runs Lila Global, a dry bulk and tanker shipping company with a fleet of 39 ships, according to its website.
“Right now, our aim is to bring back all those Indian companies who went to Singapore and Dubai to run their shipping business to IFSC,” the IFSC Authority official said.
There are 1,528 ships registered under the Indian flag as on 31 August with a combined gross tonnage (GT) of 13.70 million, according to D G Shipping, India’s maritime administration.
Will the IFSC regime act as a much-needed catalyst to grow Indian shipping, perpetually struggling from a lack of level playing field?
“The issue really is you have to build an ecosystem,” said a second executive with an Indian shipping company.
“When you go to Singapore, there is a shipping eco-system there. Clients are there, ship management companies are there. So, you get benefits more than just the tax in an ecosystem. IFSC Authority has to build that eco-system and it’s a chicken and egg situation,” the executive added.
“Eventually, if enough people come, you will get there. The IFSC Authority is doing a lot of work which is very impressive. There is a maritime university and a maritime arbitration centre. It will happen in some time,” he said, sounding optimistic.
Some ship owners operating from the domestic tariff area regime are sceptical of moving their existing ships to the IFSC platform.
“During discussions with the IFSC Authority, we have told them that the objective should not be to pull ships from Mumbai. The objective should be to pull ships from Singapore and Dubai. They should not kill the DTA regime and move all the existing Indian flag ships there. Then, there is no benefit to the Indian economy, merely moving from Mumbai to Ahmedabad,” the second company executive mentioned earlier said.
“That’s why we always fight. The Indian flag DTA ships should always get top priority in the right of first refusal process. IFSC tonnage can be second priority during RoFR because they have to offer something. IFSC cannot be equal to the Indian flag because we pay taxes and you have to give us some benefit for paying taxes,” he added.
According to Amit Oza at Astramar Shipping & Trading Services, the transfer of ships operating under the DTA regime to the IFSC has not been “tested” so far.
“No one has applied so far for transfer of ships from DTA to IFSC. But, I am sure, if someone applies, the IFSC Authority will try to sort it out,” Oza added.