Centre moves to plug the royalty outflow surge

After dilly-dallying for several months, the Centre is set to take some action on checking the rising outflow of royalties from multinationals such as Nestle, Siemens, Hindustan Unilever and Maruti Suzuki to their parent companies.

Remedies could include re-imposition of caps on outflows or taxing royalty payments.

This initiative comes at a time when less than a month is left for a new government to be constituted. The UPA Government has not taken any decision on the matter until now, fearing that it will impact investments.

Amitabh Kant, Secretary, Department of Industrial Policy & Promotion (DIPP), said that as per global practices, the amount of royalty going out needs to be controlled.

“Fair royalty is okay. But unlimited royalty is not. We will see what action we can take ourselves,” he said.

Kant told Business Line that in the next 15-20 days the DIPP and the Finance Ministry will probably have more clarity on the quantum of royalty outflows and also work out a way forward.

In late 2013, the Ministry of Commerce and Industry had raised with the Finance Ministry its concerns about the sharp rise in the outflow of royalties from India. There was, however, no action from the Finance Ministry, which was focussed on boosting investor sentiment and did not want to take any action that could have an adverse impact.

In India, royalties were capped at 5 per cent of domestic sales in the case of technical collaboration and 2 per cent for the use of a brand name and trademark till April 2010.

The caps were removed with retrospective effect from December 2009, to make the country more attractive to foreign investors.

The move, however, led to a sharp rise in outflow of royalty payments.

As per Government data, 18 per cent of the Foreign Direct Investment that flowed into the country in 2012-13 got repatriated as royalty payments. The comparable figure for 2009-10 was just 13 per cent.

(Source: Business Line April 27, 2014)

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