As IAA PortNews is informed, RF Ministry of Finance will estimate the proposals of ad hoc ministries on zero-rated VAT for ship repair in Russia by the end of April. The initiative may both reduce the cost of repair in Russia and return Russian ships to domestic repair facilities while helping ship owners avoid problems caused by sanctions. However, experts note lack of ship repair facilities in Russia and emphasize the need of additional customs regulation.
In March, the Ministry of Industry and Trade addressed Prime Minister Mikhail Mishustin with a request to support civil sector of ship repair industry amid sanctions by setting a zero VAT for repair of commercial ships, the Ministry told IAA PortNews. Relevant amendments can be introduced into the Tax Code of the Russian Federation.
“The Ministry of Finance is ordered to analyze the proposal and to report its position on the issue. The response is expected this month,” said the press center of the Ministry of Industry and Trade.
The Ministry for the Development of the Russian Far East and Arctic earlier proposed setting a zero AT for all types of ship repair at the enterprises of the Far East. According to the Ministry, this measure is aimed at raising competitiveness of the industry, import substitution and development of ship repair facilities in the Far East Region.
The Ministry of Industry and Trade says that the initiative aimed at the Far East is a pilot project used to estimate the effect of such a measure on the entire ship repair industry.
Both proposals are under consideration, the Ministry of Finance told IAA PortNews.
Zero-rated VAT has been under discussion from 2019. The market players interviewed by IAA PortNews, agree on the need to cancel VAT for repair of the national fleet at domestic yards as a state support measure essential for several industries including commercial and passenger shipping, industrial fishing, shipbuilding and ship repair, as well as related industries including production of metals, engines, paint coatings and electronics.
The demand for ship repair services is high – maintenance is needed at least once a year with capital repair performed once in five years, the business community told IAA PortNews. In Russia, ship repair services are currently offered by 57 organizations, says the Ministry of Industry and Trade. According to the strategy for the development of shipbuilding industry up to 2035, Russia numbers about 50 large and over 100 mid-size and small ship repair organizations. Most of them are focused on warships.
Commercial ships are often repaired at foreign shipyards: despite of reportedly high rates of import substitution the fleet is fitted with equipment of foreign origin. Since a 18-pct VAT is applied to goods delivered to the customs territory of the Russian Federation Russia, competitiveness of Russian ship repair companies is lower and customers opt for foreign shipyards.
It is not clear how much can the proposed measure reduce the cost of repair works in Russia and its economic viability for companies or shipyards has not been estimated.
The current edition of strategy adopted by the Ministry of Industry and Trade foresees doubling of ship repair by 2035. Meanwhile Denis Manturov, head of the Ministry, says it is to be revised to foresee a four-fold growth.
The state authorities do not comment on capabilities of Russian shipyards to face the potential orders. Apart from support of ship repair yards, the initiative can be advantageous for industrial and shipping companies many of which are covered by sanctions against both legal and natural persons, the shareholders. That can hinder services at foreign shipyards and settlement payments.
Rosrybolovstvo has already requested information about fishing companies’ scheduled repairs to develop a pan of dock repairs in the Far East and in the North basin. As IAA PortNews reported earlier, Norebo can embark on ship repair: in March Norebo Holding was registered as an owner of Pella-Stapel LLC in the Leningrad Region.
In 2021, the Far East fishery basin numbered 930 fishing ships, the North basin – 187 ships, says German Zverev, President of All-Russia Association of Fishery Enterprises, Entrepreneurs and Exporters (VARPE).
“As of today, there are no large repair centers for civil ships in the North fishery basin. The ships of the North and West fishery basins are services mainly in Norway, Finland, Poland and Baltic states, former members of the USSR. Only 20 of ship repair facilities in the Far East have economic conditions for full-scale activities. 35% of the fishing fleet in the region undergo servicing and maintenance in foreign ports, mostly in S. Korea and China,” he emphasized.
VARPE says that in 2018–2021, most of large and mid-size ships operating in the Far East and North basins (about 400 units) underwent planned and unscheduled repairs at foreign facilities. According to import entries registered by the Customs Service of the Russian Federation, statistic value of repairing 70 ships abroad thoughout the year of 2020 was as high as $119.19 million or RUB 8.57 billion (according to ruble/dollar rate of 2020).
One state support measure is not sufficient for the development of ship repair in Russia and for loading domestic facilities. A comprehensive approach is needed, German Zverev believes. “In the current situation, VARPE also suggests streamlining of administrative procedures for customs clearance of ship equipment, allowing duty free import of components needed for ship repair in the territory of the Russian Federation,” he sums up.