Bangladesh Oceangoing Ship owners’ Association opposed the new conditions set by National Board of Revenue on the maximum age limit of imported vessels and the minimum tenure of mandatory operation of those vessels as national flag carriers for availing VAT exemption on import.
The NBR on March 14 issued an statutory regulatory order (SRO) waiving 15 per cent value-added tax on the import of oceangoing large ships on conditions that include the imported vessel should not be older than 15 years and should be operated at least for five years as national flag carriers.
VAT waiver will be applicable only for ships having capacity above 5,000 deadweight tonnages.
In a recent letter sent to the NBR, BOSOA demanded amendment to the SRO and sought permission for import of 25 years old vessels.
The condition is contradictory with the provision of the country’s existing Import Policy Order, which allows import of oceangoing ships up to 25 years old, it said.
The association also asked for bringing down the mandatory tenure of operation of the imported ship as national flag carrier to three years arguing that the operator might have needed to sell the ship before five years due to loss in business.
Operator would incur huge volume of demurrage if he or she continued operation despite continuous loss in business, it said.
As per NBR condition, if any operator had to sell the imported ship before five years, it would have to pay the VAT that was waived during the import.
The association also demanded withdrawal of another condition of taking prior approval from the NBR for availing the benefit saying that it might delay the process of commercial operation of ships.
Officials of the revenue board, however, said that NBR limited the age of the ships to encourage the import of comparatively newer ones so that those could remain functional for longer period in international market as the average age of economic life of a ship has been declining.
The condition was also involved with revenue protection issue, they said.
Currently, ship breaking industry imports ships older than 25 years as scrap with payment of huge amount of taxes including Tk 1,500 per tonne as customs duty, Tk 800 as advance income tax and 4 per cent advance trade VAT.
So, VAT waiver on older ships might encourage importers to import older ships under the exemption facility and use those as scrap in shipyards after one or two years as it would save them from payment of huge amount of taxes applicable on import of scrap ships.
Officials said the condition was also not contradictory to the import policy order as the NBR did not prohibit import of 25 years old ships.
It only tagged the condition for availing tax benefit, they said, adding that anyone could import 25 years old vessels with payment of VAT.
They said that the NBR offered the VAT exemption facility after BOSOA promised to boost the sector and raise the earnings if the benefit was given.
The condition of mandatory operation for five years was tagged to maximise the benefit of VAT exemption, they said, adding that the VAT exemption would not yield any benefit if the imported ships were not operated longer period as national carrier.
At that time, BOSOA claimed that they earned on an average $ 150 million a year by carrying less than five per cent of total export-import goods worth above $ 77 billion in the fiscal year 2016-2017 though they could carry, as per international norms, up to 50 per cent of total trade volume.
The country spent minimum $7.7 billion as freight charge at the average 10 per cent rate for carrying goods in the year, it said.
Want stories like this in your inbox?
Sign up to exclusive daily email
More Stories from Tax