Deveshwar: Limitless royalty payouts adding to current account deficit

Permitting limitless royalty repatriation since 2009 has only aggravated the problem of jobless consumption, as well as the current account deficit, ITC Chairman, YC Deveshwar, said here on Wednesday.

According to the Chairman, reports suggest that such royalty payouts have increased by 70 per cent (since 2009) to reach ₹40,000 crore.

“This outflow is equivalent to about 20 per cent of India’s annual foreign direct investment. This transfer attracts lower withholding tax of as much as 10 per cent given India's bilateral agreements....thus rendering 25 per cent tax imposed in Budget 2013 as a remedy,” Deveshwar said during his speech at the 103rd AGM of the company.

ITC, he said, paid approximately ₹3 crore as royalty last fiscal.

With consumption expenditure expected to grow, such unrestrained outflows (in terms of royalty payouts) can assume even more alarming proportions.

The low rates of withholding tax on royalty payments will entail a considerable loss to the Indian exchequer.

“This method of profit repatriation escapes the full income tax rate that Indian companies are subjected to,” he said.

The revenue deficits will have to be ultimately borne by domestic industry through higher taxes, placing them at a competitive disadvantage.

According to Deveshwar, the foreign companies in their self-interest bring in brands, technology and know-how to continuously enhance their competitiveness, market standing and profits. “Therefore, there is no justification whatsoever to allow royalty, let alone limitless payouts, by the Indian subsidiaries to their overseas holding companies... Thus becoming an instrument of tax avoidance....,’’ he added.

Royalty payments, according to Deveshwar, should therefore be permitted only between unrelated parties based purely on commercial considerations with little or no Governmental intervention.

“This will facilitate Indian enterprises in accessing intellectual capital to compete effectively with international players in the Indian global market,” he said, adding that such a policy framework will go a long way in creating a level field for Indian enterprises.

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