Tonnage tax: are shipowners paying their fair share to society?

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Danish unions are cautious in their response to a suggestion by the government’s independent economic advisers that the tonnage tax should be scrapped. Lars Have Hansen, leader of the MMF engineers’ union, said overhauling a tax system is no small feat and should not be taken lightly.

Tonnage tax is an EU-approved system that is used in most European and international shipping countries. It was introduced by the Danish government in 2001 and is designed to ensure a stable level of taxation for shipowners during fluctuating shipping cycles. This means that taxation is not based on profits; instead, shipowners who are enrolled in the scheme instead pay a fixed amount of tax per net ton at their disposal. This allows them to plan long-term investments in ships.

Critics say companies like Maersk are not paying their fair share of corporate tax because the tax they would otherwise pay on profits would be much higher.

Mr Have Hansen said: ‘If you’re going to look at something with a view to changing it, you have to do it thoroughly. The union’s priority is to secure jobs for its members at sea. The system is complex, so there should be no rush to change it, he said.

The group of independent economists, known as the ‘wisemen’, recommended the removal of the tonnage tax in their latest report on the state of the Danish economy for the Danish Economic Councils, which bring together wise, trade unions, employers, the Danish Central Bank, the Danish government and independent economic experts.

In later comments, the wise man, Carl-Johan Dalgaard, said that the wise people were in favor of removing the tax advantages given to shipowners in the form of a tonnage tax, because it distorts the economy.

“At the heart of it all, it’s generally a bad idea to give favorable tax treatment to some industries over others from an economic perspective,” he said. “This is because selective taxation creates a situation where, from a private financial point of view, it is profitable to invest in favored sectors, even if pre-tax returns are higher in other sectors. This seems to be the situation in practice, as we described in our spring report. This means that less economic value is generated in society as a whole than if the state had created a level playing field fiscally for all sectors.

Danish shipping companies – including Maersk – pay less in tonnage tax than they would if they were taxed on profits, say critics of the scheme. Image: Pexels/Elena Plygach

Danish shipowners argued that without a tonnage tax, shipowners would leave the Danish register, which would lead to a drop in national income. But if the ships remained Danish, albeit under a different flag, the transfer of wages and capital to Denmark from abroad would increase, neutralizing the effect of the change, the sages say. “Gross national income should therefore remain unchanged,” Mr Dalgaard said. “Less production but more wages and capital income from abroad.”

He said they did not offer a specific alternative to the tonnage tax, but suggested it be looked at by government-appointed experts who are already studying the business support that exists in Denmark.

Henrik Berlau, a retired 3F union official and now a campaigning activist, said: “The senior sage is an important person for the government to listen to… There are many layers underneath the demand (for change). For example, Maersk buys companies in the technology and retail sectors. This means other companies don’t have the same options.

The Danish Maritime Officers’ Union said it had no particular position on tonnage tax and declined to comment.
Source: Nautilus International

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