- 27 Mar 2023
- ICICIdirect Research
Government doubles withholding tax on royalty payment to 20%
News: As an amendment to the finance bill, as part of Union Budget 2023-24, the government has doubled withholding tax on royalty payment paid to foreign owner/partner to 20% vs. 10% earlier
Views: In our view, this was done more to avoid evasion of tax liability on royalty paid to companies operating out of tax heavens. However, in our coverage, companies with foreign promoter and who pay royalty are: Maruti Suzuki India (royalty paid @ 3.4% of sales), ZF Commercial Vehicle Systems (~2.3% of sales) and Bosch Ltd (~5% of sales). Media reports indicate double tax avoidance treaty being already in place with Japan. Hence, this move will not impact Maruti Suzuki India while for the rest of the two mentioned players they may have to deduct more tax on behalf of their parent and submit it to authorities. At the forefront, it appears P&L neutral but we await official comments from the respective companies on the same
Impact: Neutral