Pavel Figurov commented on the bill promoting shipbuilding and shipping industry for the RIA Deita.
Some controversial provisions of the bill promoting shipbuilding and shipping industry should be improved, in spite of its overall positive nature.
RIA Deita was informed about Russian Federation State Duma planning to review the bill promoting shipbuilding and shipping industry in its first reading on 6-7th of July. . The bill was developed by the Ministry of Transport and the Ministry of Industry and Trade with the support of JSC Obyedinennaya Sudostroitelnaya Corporatsia (OSC) (United Shipbuilding Corporation) and submitted to the lower house of the Parliament on May 30.
We shall remind you that the bill On Making Changes in the Certain Legal Statutes of the Russian Federation to Support Russian Shipbuilding and Shipping Industry embraces two most important topics for Russian shipbuilders and ship owners. They are shipbuilding industry support and amendment of Russian International Ship Register (RISR) disadvantages.
Pavel Figurov, an expert of the Inmar Legal Ltd, believes that the bill is mostly well-done, though it has some controversial moments that are likely to be settled while bill’s reviewing in the State Duma.
In order to support shipbuilding industry bill authors offer to give some privileges for shipbuilding and repairing enterprises having residential status in industrial economic zones, such as land and property tax remission for 10 years instead of current 5-year term, as well as updating some provisions on legal status of land plots, constituting those zones, their ownership and location.
“Introduction of these provisions is believed to reduce the cost of shipbuilding and repairs at Russian shipyards that will allow them to compete on the same level with the foreign shipyards”, Pavel Figurov comments. “Though it is necessary to note that shipbuilding industry is limited by Russian banks unwillingness to provide loans for shipbuilding in Russia on reasonable terms. For example, current loans in Russian banks have a fixed term of repayment (from 5 to 7 years) and high interest rate (exceeding 10% annually)”.
As a result ship owners have to get loans from foreign banks with more reasonable terms, but at the same time there is an obligation for them to order from foreign enterprises to get a loan.
“This situation in shipbuilding industry can be significantly improved by dealing with those obstacles”, Pavel Figurov states.
The bill also provides special privileges for vessels constructed at the Russian shipyards after January 1, 2010 (RISR registration of both ocean vessels and river and river-sea ones, coastal traffic permission for those ships, income tax remission concerning coastal traffic via those ships).
Additional privileges for newly constructed ships will undoubtedly motivate ship owners to give orders for ship building to Russian yards and their consequent registration under the Russian flag. But at the same time we believe the registration of all newly constructed ships particularly in the RISR to be incorrect.
“RISR creation was intended to preserve and increase Russian corporate ship owners competitiveness on the international market of trade navigation”, Pavel Figurov notes. “However, international registration of all vessels constructed after January 1, 2010 (including river ones), even if they are never engaged in international shipments, contradicts the whole concept of an international register and the way those registers function all over the world”.
The expert of the Inmar Legal Ltd believes those privileges to be necessary but they shall be associated with a vessel instead of the register, or there will be no sense in vessels registration in different registers. In other words, those vessels constructed after January 1, 2010 shall be registered internationally only in case of their carrying international consignments. River vessels registration in the RISR is unacceptable.
“Legislation shall also limit the privileges term for newly constructed ships (eg. 5 years) since obviously those privileges can’t be assigned to newly constructed ships infinitely. Sooner or later the changes will have to be made in the legislation in order to complete deprivation of privileges for vessels or providing them for the ships constructed after January 1, 2020, for instance. As a result the ships constructed before the stated term will have to be newly registered in another register, if they have been registered in the RISR and were not engaged in international shipment”, Pavel Figurov comments.
The bill suggests voiding the 10-year registration term for vessels and 15 years remission for pension insurance payments to the Pension Capital Fund, Social Security Fund and Compulsory Medical Insurance Fund.
“These changes have been expected for a long time. Mostly such provisions held back the vessels registration in RISR. For instance, foreign ship owners do not have to pay social taxes after vessel international registration”, Pavel Figurov explains. “However we shall note that RISR in its current state has a number of other imperfections, like long time of registration (7 days compared to 24 hours in other countries), high cost of registration fee, customs duties, and VAT in case of vessel repairs abroad, etc. Elimination of these problems can guarantee turning a lot of vessels back under the Russian flag”.
Besides, while providing privileges to newly constructed and RISR registered vessels, legislators have forgotten about ship owners engaged in coastal traffic.
“It is necessary to provide privileges for such companies, consider the possibilities for tax payment and customs duties reduction, etc. Not every ship owner is able to place an order for construction of a new vessel, many of them own an outdated fleet that needs updating by purchasing other used ships. In case of almost complete tax remission for newly constructed ships owners, others will have a disadvantage, so it will become unprofitable to use those old ships”, Pavel Figurov states.
In conclusion we shall say that the bill refers to very important questions and has a number of provisions with a potential to change the situation in shipping industry and RISR attractiveness, but there still are some improvements to be made. Also before its first reading the bill shall be modified according to the Federal Law On Amendments to the Trade Navigation Code of the Russian Federation that has been signed by Dmitriy Medvedev on June 16 this year.