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Dividend tax rate may come down to 12.5%

Posted on 12 February 2008,    
 5010    Share  Report

 

Dividend tax rate may come down to 12.5%

The Union budget may reduce the dividend distribution tax (DDT) rate from 15% to 12.5%.  which was hiked in  the last budget, citing “vertical equity.”
A reduction may encourage corporates to share wealth with their investors through issue of dividends and cheer the stock market.
The hike in the last year’s DDT neither brought any significant revenues nor encouraged companies to issue dividends.. The two factors may have led the government to do a rethink.
The reduction will will not impact tax collections much.
Though India’s corporate tax rate is 30%, the effective rate is around 19.26% due to several concessions. Still, there is pressure on the government to give some relief, taking advantage of the cushion available due to the boom in revenue collections.
However, the finance ministry  may retain corporate surcharge at current levels if DDT is cut. A final decision would be taken at the highest political level.
Since this is the last budget of the UPA government, the attempt is to give something for everyone, including the industry.



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