Finance Minister Jaswant Singh is likely to accede to the shipping industry's key demand for tonnage-based taxation in the Budget for 2003-04.

The announcement is likely to be made in the Budget speech, while the changes in the statute would follow during the year.

"We have indications from the finance ministry that the demand for tonnage tax has been accepted. The notification is likely to come later in the year in the form of a new schedule in the Income-Tax Act," said a senior government official.

Tonnage tax, charged as a flat rate on the gross registered tonnage of companies, is a peculiar feature of the global shipping industry. Levy of corporate tax or minimum alternate tax acts as a disincentive to fleet acquisition in an industry characterised by low margins.

In the absence of tonnage tax, Indian companies have been acquiring vessels with foreign flag of convenience through subsidiaries in countries that have a tonnage tax regime because the flag does not make any difference in the operation of ships.

The announcement was expected to give a fillip to the domestic shipping industry, the official said, adding that the system was in place in major maritime nations, including the UK, Norway, Greece and Netherlands.

"Tolani Shipping has applied for a Singapore flag for its next ship, while Essar went to Marshal islands. The country is losing out on tax revenues despite its companies acquiring additional tonnage," he said.

The Indian National Ship-Owners' Association, the apex body for shipping companies, had made a strong pitch before the finance ministry to ensure that the proposal was included in the Budget.

Meanwhile, the Plan support for the shipping ministry has been placed at Rs 425 crore (Rs 4.25 billion), a bulk of which would be used for dredging activities. The allocation for river regulatory measures at Kolkata-Haldia dock system has been reduced from Rs 300 crore (Rs 3 billion) in the past year to Rs 250 crore (Rs 2.5 billion) in the next year.

The ambitious Rs 500-crore (Rs 5-billion) scheme of building a series of dykes along the 130-odd km stretch of the Hooghly to the Kolkata port.

And a channel at the mouth of the river had been prepared by Hamburg University in Germany. But after prospective bidders raised doubts about its efficacy, it was referred for being revalidated by National Institute of Ocean Technology at Indian Institute of Technology, Chennai.

The river regulatory measures will reduce the need for dredging with the tides washing away a substantial amount of silt.