India May Eliminate Dividend Tax

by Lorys Charalambous, Tax-News.com, Cyprus

08 June 2004

It has emerged from reports that the Indian government is considering the elimination of dividend tax as an alternative to cutting corporate tax in the 2004/2005 budget.

According to national media reports, government sources have revealed that a reduction in corporate tax from the current 36.75% to 30% will achieve very little in terms of boosting tax receipts unless the large number of permitted deductions is also reduced.

It has been suggested that removing the dividend tax levy will be a simpler task to achieve than lowering corporate tax. However, the government would lose some R6bn a year in revenues from the elimination of the 10% dividend tax.

The Kelkar Committee, which advises the finance minister on matters of direct taxation, has recommended that the government carry out both a reduction in the corporate tax rate to 30% in addition to removing dividend taxation.

Nevertheless, the committee has said that this should only be attempted after eliminating “the divergence between the taxable base for companies and accounting profits, which generally arises due to various tax incentives and artificial deductions.”

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