NEW DELHI: The government is mulling implementing a recommendation made by the Direct Tax Code (DTC) panel to remove the Dividend Distribution Tax (DDT), on grounds that it results in double taxation. Currently, the Dividend Distribution Tax, which is a tax on dividend deducted at source by corporates and paid directly to the government, stands at 20.56 per cent.
The panel, which gave its report last year, is believed to have among other recommendations sought to do remove this tax altogether and let dividend earners pay tax on their own.
The logic given are twofold — firstly the DDT is seen as a double taxation where taxes have to be paid at two places and secondly it is seen as discriminatory against small retail shareholders whose tax slab may extremely low or nil. At the same time, the existence of the DDT tax actually means that the burden of tax on holding companies is far higher than the new corporate tax rate of 22 per cent. According to some calculations, it is actually 37 per cent, taking into account surcharges and DDT.
Top revenue department officials said that “removing the DDT is one of the major recommendations of the DTC panel and we are considering doing this … the other part of the recommendation is that we give a standard deduction of 20 per cent on dividend as the expense incurred in earning this money, that would be a kind of incentive for being invested in equity. We are not sure if this can be done.”
The contentious DDT tax was brought in the year 1997 and then removed in 2002 and then again brought back in the year 2003. There have been several past proposals for its removal as well as representations by industry bodies. However, till date governments have felt it is necessary to have it and retained the tax.