Tax benefit to spur growth of oceangoing shipping sector
Bangladesh's fleet of oceangoing vessels is expected to expand in the coming years after the National Board of Revenue eased age rules for ships to qualify for VAT exemption during imports and cut advance income tax.
The revenue authority said it would extend the value-added tax (VAT) exemption to import up to 25-year-old ships in the next fiscal year from the existing 22 years.
It also relaxed the restriction on the sales of vessels over 5,000 deadweight tonnages. Importers will be able to sell ships after three years from the current five years from the next fiscal year.
The NBR brought down the advance income tax (AIT) on vessel imports to 1 per cent for FY22 from 2 per cent in the outgoing fiscal year.
"It will have a very positive impact because the investment size in oceangoing ships is huge.
And the AIT during the import increases our initial cost," said Azam J Chowdhury, president of the Bangladesh Ocean Going Ship Owners' Association.
According to the businessman, the relaxation would raise interest among entrepreneurs to invest in taking a slice of freight charges that businesses pay to import goods.
Bangladesh spends $7-8 billion as freight charges every year to carry goods for its imports. The country has the opportunity to retain a portion of freight charges, ship owners earlier said.
Currently, entrepreneurs have 70 ships plying on the international waters. The number of vessels, dry cargo vessels, tankers and container vessels doubled from 35 five years ago.
Bangladesh had 85 oceangoing ships. But 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 number 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 cater for the global freight market would increase if the government further relaxed some more rules.
The tax at source on freight incomes should be removed, he said.
"We are earning foreign currency. Either the government should withdraw the tax or bring down the rate to 1 per cent," he said.
At present, 3 per cent to 5 per cent tax on freight is applicable depending on the destinations.
"In addition, Bangladesh Bank's support is needed," Chowdhury said, adding that steps should be taken so that importers mention C&F (cost & freight) and FOB (Free on board) 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 Group of Industries, said the AIT on freight income should be withdrawn as ship owners received a small portion of the revenue after deducting operating expenses.
"This is a highly capital-intensive sector, and a lot of risks is involved. Many entrepreneurs will sign up in the trade if the remaining issues are addressed," he said.
MGI owns eight oceangoing vessels.