There's a case for heavy taxes on MNC royalties

Royalty payments to MNCs by their local units have been rising-even going above dividend payouts in some cases. India needs shareholder vigilance and fiscal action to curb excesses

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Even as revenue growth for companies in India has reduced its pace to a canter, royalty payments sent abroad by several Indian offshoots of multinational companies (MNCs) are galloping ahead. In several cases noted by market regulator Sebi, royalty payments exceed dividends. In fact, the higher the firm's expense on royalty payments, the lower the profit and thus lower the possible dividend outgo from it.

In 2023, the Indian government increased the withholding tax on royalty payments and fees for technical services from 10% to 20%. In fact, there is a strong case for raising the normal tax on royalty payments to the applicable corporate-tax rate. On some types of royalty-payment hikes that have no rational basis, the tax rate on the incremental payout could go as high as 100%.