Tuesday February 28, 2012

Tax on local vessels needs review


Local OSVs unable to compete with charter rates offered by foreign-owned vessels

KUALA LUMPUR: Owners of Offshore Support Vessels (OSVs) in the oil and gas industry, are urging the Government and local banks to look into tax and financing issues affecting their business.

According to Malaysia OSV Owner's Association president Tasripin Masotee, local vessel owners were facing stiff competition from foreign-owned vessels (including Labuan registered vessels) that were offering lower daily-charter rates by as much as US$1,000 (RM3,015) to US$2,000 (RM6,030) per day.

He emphasised that OSV players were not asking for handouts from the Government.

Tasripin: ‘We want a level playing field and tools for us to be competitive and market-driven.’

“We want a level playing field and tools for us to be competitive and market-driven,” said Tasripin in a statement.

He said factors that had led to the “uncompetitive” charter rates offered by Malaysian-owned vessels included unfavorable fiscal and monetary legislation on corporate tax, high operation and maintenance costs in Malaysia due to tax, work permit fees for foreign crews, and comparatively high cost of financing from local banking institutions.

Tasripin cited Singapore as offering a more favourable environment for OSV owners.

“Currently Singapore offers fiscal benefits or tax exemption to OSVs registered in Singapore. Income derived from the operating or chartering of such ships in international waters, enjoy tax exemption.

However, sadly this is not happening in Malaysia, where the tax exemption is only applicable to merchant cargo ships.”

He also pointed out that in Malaysia, imports of ship engine spare parts, equipment, machinery, mooring and anchor wires, anchors and navigational equipment were taxable items.

“In Singapore, these items are exempted from tax.”

Tasripin also said the cost of financing with banks in Malaysia was much higher, compared with offshore foreign banking institutions, by almost 50%.

“For example, Singaporean owners are paying 3%, while Malaysian owners pay between 6% and 7%. The interest rates in Malaysia are not competitive while margin of financing is lower and repayment periods are shorter. There is no way for local OSV owners to expand their fleet until they have settled the loan of the previous vessels.”

The association's membership consists of 17 companies with a combined fleet strength of 198 vessels.

Malaysia OSV members are said to have a combined revenue of more than RM15bil, and assets of RM10bil, with about 12,000 employed marine crews serving on offshore vessels nationwide.

Presently, there are 49 Malaysian-registered companies (including those registered in Labuan) that own and operate OSVs, with vessels having an average age of six years.

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