The government has been urged to scrap corporation tax for shipping firms and replace it with a tonnage tax in a move that could cost the Treasury up to £50m a year.
An Environment, Transport and Regional Affairs committee report on the ‘future of the UK shipping industry’ published last week slated the Inland Revenue and the Treasury for failing to take part properly in a study of such a move. It said that, as shipping investment tends to be drawn to low tax regimes, steps should be taken to stop companies ‘flagging out’ their vessels abroad.
The committee said that the government’s shipping working group believes replacing conventional corporation tax with a tax on the total tonnage of fleets, set at a low level, would result in more ships being registered in Britain.
It said the Netherlands introduced such a tax in 1996 attracting 120 ships onto its register and increasing the number of Dutch sailors.
‘The experience of the Netherlands appears to support this belief, and we note that Lord Sterling of P&O believes that with a ‘sensible’ tonnage tax his company would be able to bring up to 55 ships back to the register,’ MPs said.
The SWG estimates the cost of these changes at between £40m and £50m a year. But Chamber of Shipping figures show the extra tax of being UK registered would cut the bill to a maximum of £10m to £15m.
The committee concluded: ‘The UK shipping industry is in a parlous condition and radical measures are required to arrest and reverse its decline. We recommend that a low rate tonnage tax, including measures to boost training of British seafarers, and to prevent tax avoidance should be introduced without further delay, preferably as an amendment to the current Finance Bill.
‘We regard the fact that the Treasury and the Inland Revenue did not participate in the shipping working group deplorable and their failure so to do has unnecessarily delayed the proper consideration of the tonnage tax. We also believe that the evidence given to us by the Treasury was ill-prepared and inadequate.’
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