Financial Daily from THE HINDU group of publications
Sunday, Mar 02, 2003
Corporate - Taxation
Industry & Economy - Income Tax
Cos may rush to pay out interim dividends To skip distribution tax
NEW DELHI, March 1
IN what could be a repeat of last year's post-Budget corporate moves, companies appear to be planning to avoid payment of dividend distribution tax of 12.5 per cent by coming out with interim dividend announcements before April 1, 2003, the day from which the new tax would become effective.
Already, the first such signs are visible with a few companies firming up plans last evening in the immediate post-Budget hours by announcing payment of dividend. These include Shipping Corporation of India, Philips Carbon Black and Gujarat Ambuja Exports Ltd.
Anticipating a change in dividend taxation policy, close to half-a-dozen companies had already fixed up dates for board meetings for taking up the issue of dividend that include among others Assam Petrochemicals, Gestetner and Gujarat Gas Co.
Market men said that while the Finance Minister, Mr Jaswant Singh, has freed the small investors of the burden of dividend tax; he has in fact raised the dividend distribution tax payable by the corporates. Earlier, the dividend distribution tax at the hands of the corporates was pegged at 10 per cent.
"Due to this increase, several corporates wishing to palm off the tax burden to the shareholders have announced plans of offering dividends," said a senior stock exchange official.
While the Government has made frequent changes in its policy on dividend tax, each time industry has reworked its dividend plans in short notices in order to save on taxes.
Last year too, when dividend distribution tax was replaced by dividend tax payable at the hands of the recipients by the erstwhile Finance Minister, Mr Yashwant Sinha, there was a mad rush by India Inc to pay dividends before fiscal 2001-02 ended in order to save on the taxes.
This was because the largest beneficiaries of tax-free dividend for an overwhelming majority of companies were the promoters themselves. Finally the market regulator, Securities and Exchange Board of India (SEBI), had to intervene under instructions from the Finance Ministry and put an end to the dividend payout issue.
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