Tax benefit to spur growth of oceangoing shipping sector
Bangladesh's fleet of oceangoing vessels is likely to expand in the coming years following the National Board of Revenue eased age rules for ships to qualify for VAT exemption during imports and cut advance income tax.
The income authority said it could extend the value-added tax (VAT) exemption to import up to 25-year-old ships within the next fiscal year from the prevailing 22 years.
It also relaxed the restriction on the sales of vessels over 5,000 deadweight tonnages. Importers should be able to sell ships after 3 years from the existing five years from another fiscal year.
The NBR brought down the advance income tax (AIT) on vessel imports to at least one 1 % for FY22 from 2 % in the outgoing fiscal year.
"It will have an extremely positive impact because the investment size in oceangoing ships is huge.
And the AIT through the import increases our initial cost," said Azam J Chowdhury, president of the Bangladesh Ocean Going Ship Owners' Association.
Based on the businessman, the relaxation would raise interest among entrepreneurs to invest in going for a slice of freight charges that businesses pay to import goods.
Bangladesh spends $7-8 billion as freight charges each year to carry goods for its imports. The country gets the opportunity to retain some of freight charges, ship owners earlier said.
Currently, entrepreneurs have 70 ships plying on the international waters. The quantity of vessels, dry cargo vessels, tankers and container vessels doubled from 35 five years ago.
Bangladesh had 85 oceangoing ships. However the owners sold off most of them in the face of declining freight rates, higher operating costs and removal of the VAT exemption on the imports and manufacturing of ships from fiscal 2014-15.
Private investors showed renewed interest in buying ships after the NBR reinstated the VAT exemption in 2018 to accelerate the shipping industry's growth.
Since then, the amount of locally owned ships has started increasing as the volume of imports and exports for the growing economy has increased.
Chowdhury said investment in ships to appeal to the global freight market would increase if the federal government further relaxed even more rules.
The tax at source on freight incomes should be removed, he said.
"We are earning forex. Either the federal government should withdraw the tax or lower the rate to at least one 1 per cent," he said.
At present, 3 per cent to 5 per cent tax on freight is applicable depending on the destinations.
"Furthermore, Bangladesh Bank's support is necessary," Chowdhury said, adding that steps ought to be taken to ensure that importers mention C&F (cost & freight) and FOB (Free up to speed) prices of goods while opening the letters of credits.
"Once this is done, Bangladeshis will buy many ships," he said.
Mostafa Kamal, chairman and managing director of Meghna Band of Industries, said the AIT on freight income ought to be withdrawn as ship owners received a small portion of the earnings after deducting operating expenses.
"This is a highly capital-intensive sector, and lots of risks is involved. Many entrepreneurs will subscribe in the trade if the remaining issues are addressed," he said.
MGI owns eight oceangoing vessels.
