The Union government is considers tax cut on Marine Diesel Oil (MDO) by bringing it under the Goods and Services Tax (GST) to lower costs for coastal and inland shipping, making these sectors more competitive. The Ministry of Ports, Shipping and Waterways (MoPSW) will work with the Ministry of Finance and state governments to explore tax reductions and potential incentives for the shipping sector, according to sources. Despite minimal revenue impact, states could be compensated for any losses incurred under the GST framework.
Marine fuel only constitutes about 1% of India’s total fuel consumption, which is expected to reach 238.95 million tonnes this fiscal year. Queries sent to the finance ministry and MoPSW were not immediately answered.
Rakesh Singh, Secretary of the ICC Shipping Association, explained that fuel costs represent approximately 40% of operational expenses for coastal shipping, and lowering taxes on MDO could significantly benefit the sector. Most coastal vessels use MDO, unlike larger intercontinental ships that use heavier bunker fuel, which has had a reduced GST rate of 5% since 2017. This reduction was implemented to make Indian shipping more competitive and easier to manage.
A shipping ministry official confirmed that the proposal to bring MDO under GST is under review, with data being collected to assess fuel usage in the sector. Approval from the GST Council will be required, and discussions with oil marketing companies are ongoing for further clarifications.
Singh emphasised that international case studies, particularly from Europe, show that government incentives are crucial for developing coastal and inland waterways. The MoPSW has initiated several projects under the Sagarmala programme, focusing on boosting coastal shipping and shifting cargo transport from road to waterways. Additionally, the ministry is developing roll on-roll off (ROPAX) services to reduce travel time and vehicular emissions. Over ₹14,500 crore has been allocated for coastal shipping projects, with another ₹2,900 crore set aside for cargo handling infrastructure. The Sagarmala programme also includes 38 inland waterways projects, such as the NW16 project, connecting to the Indo-Bangladesh Protocol Route.
The government’s move for tax cut on Marine Diesel Oil (MDO) aims to reduce operational costs and boost competitiveness in coastal and inland shipping. This initiative could have a transformative impact on the shipping sector, promoting greener, more cost-efficient modes of transportation, aligning with India’s Sagarmala programme.
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