| Abstract: | Zero taxation is today the rule in the international shipping industry. The absent income tax on profits is translated into an equivalent reduction in freight rates. Countries and companies which are net purchasers of shipping services gain, while the treasuries of countries providing the equity lose. Equity investors in shipping obtain no more than the internationally required after-tax profit level. The private income distribution effect, therefore, should not give rise to political concern. By eroding the tax base, zero taxation gives rise to an economic cost by shifting taxation to other sources. The effect on resource allocation through too high volumes shipped is shown to be insignificant. In countries where profit taxation is still levied, shipowning cannot remain competitive. Forcing inherently competitive operators to close down or move to a zero tax location is likely to cause a significant economic loss. Short of ordinary taxation of shipping internationally, the second best solution may be a more consistent lifting of tax obligations. |
