Government mulling over proposal to restrict royalty payments

The Commerce and Industry Ministry has proposed limits on royalty payments for technology transfer or collaboration involving foreign entities either directly or indirectly through any firm in India due to excessive outflow of such funds to overseas companies.

According to the sources, the government is considering the proposal and it will be circulated for inter-ministerial views.

The proposal states that royalty payments should be capped at 4 per cent of domestic sales and 7 per cent of exports for the first four years. For the next three years, the limits should be 3 per cent of local sales and 3 per cent of exports. Then the payments should be capped at 2 per cent of domestic sales and 4 per cent of exports for three years and thereafter at 1 per cent of local sales and 2 per cent of exports.

The ministry has planned to put a ceiling on royalty payments at 1 per cent of sales and 2 per cent of exports of an entity, with consideration to the use of trade mark and brand names.

The ministry had argued that these restrictions would help to increase the profits of domestic companies, increase revenue for the government, and prevent depletion of foreign exchange.

The outflow of royalty payments surged after the government liberalized the FDI policy in 2009. It allowed Indian companies to pay royalty to their collaborators without seeking permission from the government beforehand.

(Featured Image – Zee News)