Shipping Ministry Pushes for Tax Parity to Support Domestic‑Flagged Vessels

 

Introduction

India’s Shipping Ministry is launching a bold new push for tax parity—aiming to level the playing field between Indian-flagged vessels and their foreign counterparts. By cutting domestic levies and revamping policies, the ministry hopes to strengthen home‑grown shipping, reduce reliance on foreign vessels, and build resilience in maritime trade. This piece explores why tax parity matters, what’s on the table, and how this could reshape the industry—and your financial landscape.

Why Tax Parity Matters

• 20% cost disadvantage: Indian-flagged vessels currently face about 20% higher operating costs compared to foreign vessels—due to higher IGST, TDS on seafarer wages, and blocked GST credits 

• Flat cargo share: Despite incentives, Indian-flagged vessels still carry just ~8% of national imports—a share that has remained static since FY2021 ETInfra.com.

• Strategic vulnerability: Relying heavily on foreign vessels exposes India to geopolitical, economic, and logistical risks—accentuated during crises like the Red Sea disruptions.

These factors hurt both operational competitiveness and national interests. Driving tax parity is no longer just a fiscal issue—it’s strategic.

What the Shipping Ministry Wants

Here’s a snapshot of the proposals under discussion:

1. IGST on ship imports

   • Eliminate the 5% IGST for ships flagged under Domestic Tariff Area (DTA), currently only waived in GIFT City—where flagging has become a tax-driven choice 

2. GST credits for MRO (Maintenance, Repair & Operations)

   • Reverse-charge mechanisms are currently blocking credits, increasing overheads on domestic vessels 

3. TDS exemption for seafarer income

   • Currently, Indian crew on domestic vessels are taxed—unlike their counterparts on foreign-flagged vessels. Eliminating this would equalize wages .

4. Customs duty waivers

   • Capital goods, components, and equipment for shipbuilding could be exempted from duties—reducing build and maintenance costs 

GIFT City vs. Domestic Shore

The Gujarat International Finance Tec‑City (GIFT City) has seen vessels like the CMA CGM Vitoria flagged within hours—thanks to a generous tax‑holiday and zero customs/GST.

The Finance Ministry and MoPSW are now working to shatter this geographic barrier—seeking to offer the same benefits within the Domestic Tariff Area. Expect e‑Samhudra, a streamlined single-window DG Shipping portal by year-end, to simplify flagging further 

Connecting Policy to Outcomes

The government isn’t stopping there:

Initiative	Details
Shipbuilding Financial Assistance Policy (SBFAP 2.0)	₹18,090 cr baseline, plus ₹25,000 cr via Maritime Development Fund; offering 20‑30% subsidies for green/advanced vessels
Subsidy for merchant-flagging	₹1,624 cr over 5 years for Indian-flagged vessels bidding in global tenders
Finance & Recycling Incentives	Credit notes, shipbreaking benefits, low-cost financing, infrastructure stimulus
Maritime Development Fund	₹25,000 cr fund to finance ~1,000 domestically-built vessels 🌱

Real-Life Impacts: Who Stands to Benefit?

• Shipping Companies: Lower import duties, smooth operations, and improved bottom lines

• Seafarers: Higher take-home pay from wage-tax reform

• Vessel Owners: Greater incentives to register and build in India

• Shipyards: More orders thanks to improved cost competitiveness

Together, these changes can increase domestic flagging, boost Indian tonnage, and create a resilient, self-reliant maritime sector.

Practical Tips for Industry & Investors

• For Shipping Firms:

  • Monitor upcoming Finance Bill for potential direct savings

  • Consider reflagging vessels once IGST or TDS reforms kick in

• For Seafarers:

  • Track tax law updates—you may pay less under new rules

  • Budget for improved salary after TDS reforms

• For Shipyards & Investors:

  • Explore SBFAP 2.0 subsidies for building green vessels

  • Navigate Maritime Development Fund for low-cost financing

  • Leverage shipbreaking credit notes to reduce capex

• For Policy Watchers:

  • Follow e‑Samudra’s rollout for flagging ease

  • Watch how Finance Ministry reacts to Shipping Ministry’s proposals

Conclusion

The Shipping Ministry’s push for tax parity is not just relevant—it’s transformative. By bridging tax gaps, aligning domestic shipping cost structures with international norms, and unleashing funding support, India could dramatically reshape its maritime sector. Expect higher cargo share, stronger shipyards, and improved financial outcomes across the board. This is a sea-change moment—and Manika TaxWise is here to guide you through the tide.

📌 Keywords

• Shipping Ministry tax parity

• Domestic-flagged vessels India

• IGST on ship imports

• TDS exemption seafarers

• Shipbuilding subsidies India

• SBFAP 2.0 funding

• Maritime Development Fund

• e‑Samudra portal

• Domestic shipping competitiveness

✅ FAQs

1. What is tax parity in shipping?
   It means equalizing tax costs for Indian-flagged vessels compared to foreign ones—covering IGST, TDS, GST credits, and customs duties.

2. Why do Indian vessels pay 20% more?
   Domestic levies like import tax, blocked refund claims, and crew income taxes drive up operating costs.

3. What is GIFT City’s advantage?
   Vessels flagged there enjoy tax holidays, customs exemptions, and simplified banking—currently unavailable onshore.

4. What are the main reforms proposed?
   Scrapping 5% IGST, restoring GST credit for MROs, rolling back seafarer TDS, and waiving customs duties.

5. Who benefits most from these reforms?
   Shipping companies, seafarers, shipyards, and maritime investors.

6. What is the SBFAP 2.0?
   A subsidy policy offering 20–30% support for building ships—especially green or specialized vessels.

7. How does the Maritime Development Fund help?
   It offers ₹25,000 cr in low-cost financing to build ~1,000 ships, boosting shipyard order pipelines.

8. When will these reforms take effect?
   Reforms are expected post‑Budget/Finance Bill; the e‑Samudra portal is expected by end‑2025.