The impact of the dividend
tax has been prompting firms to invest in debt “thereby depriving companies
of much-needed equity,” to expand, said Daksha Baxi, Mumbai-based head of international taxation at law firm Cyril Amarchand Mangaldas. For investors the tax meant they can’t take credit “for taxes paid by Indian companies and secondly, their tax incidence goes up.”
A spokesman for the finance ministry couldn’t be immediately reached for comment. The move is among recommendations of a government-appointed panel, the Economic Times reported earlier.
Indian companies need to pay the tax office 15% of dividends declared, which rises past 20% once surcharges are added. Investors, who are also taxed on their earnings, have protested these multiple levies.
distribution tax brings about 600 billion rupees to the exchequer each year and the planned changes won’t affect collections, the people said.
Share of gross fixed capital formation in India’s GDP has been falling as companies have refrained from investing. The measure stood at 29.7% in the June quarter, hovering near the record low of 27.9%, according to data compiled by Bloomberg
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