Pizza Hut franchisee Yum! faces Rs 1,920 cr Fx, licence abuse bill

Yum! Restaurants, the franchisee for Pizza Hut and Kentucky Fried Chickenbrands in India, is facing foreign exchange violation charges that could potentially lead to Rs 1,920 crore penalties.

Yum!’s licence may also be cancelled if it is found guilty of violating the terms under which the Foreign Investment Promotion Board (FIPB) allowed it to operate in the country in 1993.

After a two-year investigation, the Enforcement Directorate, the chief foreign exchange management agency of India, has served Yum! a notice seeking explanations.

“A show-cause notice was served last week. We are waiting for their response,” a senior ED official told DNA.

A spokesperson of Yum! confirmed receiving the notice. “We are examining this before deciding on an appropriate course of action. Yum! is a responsible global company that has been operating legitimately in the country for more than a decade. We comply with all applicable laws of the land and are committed to investing and building our brands in the country in an ethical manner,” the spokesperson said.

As per the FIPB licence Yum! had to invest $80 million or Rs 390 crore over 7 years.

The company had said it would bring this investment in two tranches of $40 million each.

“Our probe found that the firm brought in only about $35 million in all. This amounts to both a foreign exchange and an FIPB licence violation,” theED official said.

The foreign exchange violations amount to over Rs 668 crore in all. Adding penalties, the amount payable to government stands at Rs 1,920 crore, the ED official said.

Yum! has been accused of other violations, too. During the period of the agreement, it reportedly sold off several of its franchisee outlets and is learnt to have paid royalty at the rate of 5% of net sales to its parent company in the US.

ED officials have also accused the company of service tax evasion on services Yum!’s Indian arm provided to outlets in Pakistan, Sri Lanka, Mauritius and Bangladesh. The service tax which was to be paid to the Government of India was instead paid to the company’s parent country, the US.