ISLAMABAD: The Overseas Investors Chamber of Commerce and Industry (OICCI) has proposed amendments to Paragraph 11, Chapter 14 of the State Bank of Pakistan’s (SBP) Forex Manual concerning royalty, franchise, and technical fees in the services sector.
In a letter to Power Minister, Sardar Awais Khan Leghari, Secretary General/ CE OICCI, Abdul Aleem referred to OICCI’s meeting with on August25, 2025.
According to OICCI, it supports revisiting paragraph 12 of Chapter 14 of the SBP Foreign Exchange Manual (Royalty, Franchise & Technical Service Fees) to align Pakistan’s framework with comparable emerging markets.
Tariff ‘anomalies’: FPCCI approaches power minister
OICCI argues that to compete for and attract sustainable foreign direct investment, the remittance of dividends, royalty and technical fees, the most important element of return on investment, are considered to be of utmost seriousness by the foreign investors and therefore, due care needs to be taken in its regulations.
“We have reviewed the regulation of the emerging markets and are of the view that there is room for improvement. Please note further that the remittances are subject to income tax withholding in line with the respective avoidance of double taxation treaties and therefore, streamlining them will help in increasing the tax revenues, as well as, will minimise the possibility of remitting the same beyond normal banking channels,” said Abdul Aleem. It was agreed in the meeting that OICCI will share sector-specific inputs from members in the telecommunications and banking sectors for the State Bank’s consolidation ahead of the next meeting.
With respect to the banking sector, OICCI maintained that as per SBP Regulation of RFT, recurring payment is explicitly capped at a percentage of net sales. However, there is a growing trend in market where agreements are referencing ‘gross revenue’ as the base for calculating the RFT rate.
The success of attracting investment often depends on offering competitive return. Hence, it has been suggested that SBP should increase the RFT rate (currently capped at 5 percent) to attract foreign investors in entering lucrative business ventures with local companies.
In telecommunication sector, OICCI stated that globally, jurisdictions with progressive service economies have adopted pragmatic and sector-specific RFT frameworks. Some best practices include: (i) Service-Based Royalty Models: use of service volume, licences, or subscriber base as benchmarks for RFT valuation ;(ii) Management/ Support Fees: where direct royalty is difficult to compute, companies are allowed to pay inter-company support fees (often a percentage of local revenue or cost base) for central functions; (iii) Pre-Agreed Thresholds: many regulators offer APAS or safe harbour agreements based on historical data or third-party benchmarking studies.
OICCI has recommended that SBP should publish guidance tailored to telecom operators allowing recurring sales-based or services-based RFT fees. This approach would reflect the continuous and evolving support provided by HQs in the form of research, digital transformation strategies, fintech enablement, HR process improvements, and market-specific execution plans that collectively enhance local operational efficiency, competitiveness, and revenue growth.
OICCI further stated that where quantification is complex, allow fixed/ variable management fees instead of traditional royalty justified by internal allocation policies.
OICCI added that SBP should consider easing the audit intensity and granular justification requirements for RFT approvals in the telecom sector. Due to the bundled nature of support services ranging from continuous research, innovation, and strategy development to HR and process optimization the value received from HQs cannot be precisely quantified line-by-line. Senior management at HQs continuously invests time and expertise in equipping local operating companies (opcos) to stay ahead of market dynamics and deliver services. A flexible, principle-based framework that acknowledges the ongoing nature of these services would enable better compliance while encouraging further foreign investment.
OICCI has proposed that lump sum upfront fee threshold/ documentary requirements be USD 300,000 instead of existing USD 100,000, adding that with the expansion of business verticals, both the upfront service fee and recurring RFT payments are expected to increase; therefore, the existing threshold, should be revised accordingly, as already given to the manufacturing sector.
Recurring royalty payments should be up to 10 per cent of net sale (excluding taxes/ imports) instead of up to 5 per cent.
OICCI has argued that given long-term arrangements with foreign collaborators and third parties, it is essential to extend the tenure accordingly. Telecom license issued by PTA is also valid for 15 years which shows longer business continuity and need for RFT.
On allowable expense for FBR, OICCI stated admissibility of expenses by FBR where same has already been certified by SBP as members face double jeopardy when audit proceedings are initiated by the FBR on matters that have already been concluded with the SBP.
Copyright Business Recorder, 2025