Registration of ships and issues of tax liability

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Registration of ships is an important area in merchant shipping. The subject is also governed by the UN Convention on conditions for registration on ships 1986. The convention lays down responsibilities and recognises the authority of National Maritime Administration Article 11 of the Convention defines the scope of registration. The general principles of this convention state that each country has the authority to register ships in accordance with the principle of national legislation.

The relevant legislation in Pakistan governing merchant shipping is, Merchant Shipping Ordinance 2001. The ordinance is the basic law governing the field of merchant shipping and lays down procedures to regulate the merchant shipping industry. Chapter 4 of this ordinance provides procedures for registration of ships. Sections 11-14 state the general requirement for registration and section 16 lays down the procedure for registration of Pakistan ships. These procedures have further been elaborated through The Merchant Shipping (Registration of Ships) Rules 2002 and detailed procedures have been prescribed vide SRO 28(KE) 2008 dated 14-3-2008. Registration though compulsory for flying Pakistan flag, yet the law provides for exemption from registration as well.

Section 15 of the Ordinance 2001 provides that specified categories of ships stand exempted from registration. Amongst other category of ships, ships belonging to government have been included in this category (except where expressly provided). Thus the registry requirements are not applicable to government ships. For the registration of ships Karachi Port and Port Qasim have been declared as the ports of registry.

There are many questions to be settled before the registration. For example, in this regard issues include ownership of the ship, its character, the terms of purchase and its future business in the country. Owner of the ship any natural or juridical person recorded as the owner of ship. Where the ship can be has been consigned to someone, the consignee shown in the bill of lading will be the natural as well as juridical owner of the ship and he will be treated as the owner accordingly.

For example in one of the recently contested case before the competent authority issue of registration came up and there the contesting party argued that subject ships were consigned to them as was evident from the bill of lading. It was contended that in terms of Bills of Landing Act, 1856, the person to whom the goods have been consigned is the owner of goods. Thus within the framework of law, consignee is the owner of the ships. From the example cited above it is evident that how complex issues can crop up and require the real test of wits to explain and understand these novel legal phraseology of the legal language.

One can see that in order to understand a simple concept how complex rules including international conventions interplay with each other. All this is important from the perspective of international law since ownership; flag and jurisdiction attain importance in respect of disputes arising in between states, multi-national companies and business. Flag is also important from the perspective of jurisdiction as well as the nationality of the ship. In international law, person, jurisdiction and the applicable law are the vital segments for decision in respect of arising liabilities.

As a rule, the type of fiscal attachment throws light not only on the subjective side of the fiscal law relationship, but also on the extent of the tax liability. Thus, personal attachment triggers off 'full' (unlimited, general) tax liability. This allows the body politic to draw the total economic interests of a taxpayer, who is subject to its territorial sovereignty, into the tax net, ie his world-wide income and assets. The tax jurisdiction, although emanating from territorial sovereignty, breaks the territorial bounds of the State and extends to tax objects beyond its national territory. This spatial extension of tax jurisdiction is possible, because States can bring to bear the whole pressure of their administrative machinery on residents in their state territories. Such comprehensive subjection of the property and income of a tax subject is regarded by the holders of the tax jurisdiction as legitimate by virtue of the fact that the owner of the taxable property or recipient of the taxable income is resident in their territories (residence-, universality-, totality-principle).

Conversely, mere economic attachments results in "limited tax liability. In this case the state is satisfied with assessing the assets situated within its territory ie the income emanating from it. Here the tax jurisdiction is based on the source-, ie origin-principle, sometimes also called principle of territoriality. In most States, at least in, that belonging to the Anglo American and Continental European system of law, tax liability arises by virtue of personal as well as economic attachment of the legal subject to the holder of the tax jurisdiction. Thus, they apply the residence and the source principle. On the other hand, the Romanic fiscal systems ('schedular', 'analytical' tax systems) which adhere to the so-called schedular principle, take as their starting point solely the sources of income and restrict themselves to taxing incomes which originate from internal, domestic sources. Schedular tax systems have been preserved in their purest form in the South-American states. These states do not have any general income or property taxes which take into account personal 'ability to pay' as a central fiscal yardstick of taxation. The taxes are levied according to income categories and confined in respect of territory, irrespective of whether the residence or habitual abode of the taxpayer is within the country or abroad. It is true, however, that in the latent process of tax harmonisation which is now occurring, a reduction of the number of taxes levied on income categories ('analytical' taxation), in favour of a general income and property taxation system ('synthetic' taxation) based on the residence principle, can be observed.


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