The Economic Co-ordination Committee (ECC) of the Cabinet has refused to revise terms and conditions for payment of royalty, franchise and technical fee in services sector, saying that the Board of Investment (BoI) should re-submit the proposals after proper consultations with stakeholder, official sources told Business Recorder.
The BoI was of the view that the fee of $100,000 fixed by the Cabinet Committee on Investment (CCoI) in 2000 as initial fee payable to the franchiser should be abolished and maximum 5 percent of net sales allowed as franchise be increased to 7 percent, sources said.
According to sources, Finance Ministry was the major opponent of the proposal which in its written comments said, " The Ministry does not feel that the ceiling of $100,000 as initial fee and 5 percent annual fee in food sector is causing irritation to the flow of FDI."
Sources said that in December, 2000, the CCoI had approved the terms and conditions that in case of foreign investment in non-manufacturing sectors, including food sector, the initial lump sum fee would not exceed $100,000, irrespective of the number of outlets under one franchise.
It had also been decided that a maximum 5 percent remittance of net sales (excluding 15 percent sales tax) in the food sector be allowed as franchise fee only for core items of the franchise with specialities having trade name.
The payment of such fees be allowed on monthly basis. No item will be eligible for twice payment of royalty/franchise fee, eg soft drinks, etc.
Percentage/amount of fees etc for other non-manufacturing projects may also be up to the maximum of 5 percent of net sales (excluding 15 percent sales tax).
The agreements conforming to above guidelines will be sent by the sponsors to State Bank of Pakistan (SBP) for information. However, any relaxation or deviation from the guidelines will require prior approval of the CCoI.
Sources said that in view of the improved economic scenario, SBP reviewed the foreign exchange regulations for further liberalisation wherever possible and proposed to revise the standard terms for payment of royalty, franchise and technical fee in services sector, which says that the limit of maximum initial fee payable to the franchiser up to $100,000 irrespective of the number of outlets under one franchise, be abolished and maximum of 5 percent of net sales allowed as franchise fee be increased to 7 percent.
BoI said that since SBP had liberalised its terms and conditions, the limit of maximum initial fee payable to the franchiser up to $100,000 for services sector may also be abolished and maximum of 5 percent of net sales allowed as franchise fee may be increased to 7 percent.
Sources said that the Board also argued that revision of existing standard terms for payment of royalty, franchise and technical fee in the non-manufacturing sectors, including food sector, would further boost foreign investment.
They said that Finance Ministry had opposed the proposal in the ECC meeting after which the summary was turned down in its present form.
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