NEW DELHI: The Central government, which has set rolling preparations for the next budget, is planning to alter the Dividend Distribution Tax system.“Change in Dividend Distribution Tax (DDT) is a long-pending demand from investors. The finance ministry will rework the whole DDT portfolio, taking into consideration suggestions from companies and investors,” said a finance ministry official.
Currently, corporates need to pay 15 per cent of dividends declared to the tax office; add surcharges to this, and it rises above 20 per cent. Investors are also taxed on their earnings. Both the sides have raised
objections to the DDT.
In a meeting with Union finance minister Nirmala Sitharaman, business leaders had highlighted that dividends were taxed thrice in the form of corporate tax, DDT and finally at the investor level, making the Indian capital market quite unattractive globally.
The finance ministry official, however, has ruled out scrapping of DDT. “At this point of time, there is no question of scrapping the tax, but total abolishing of it may not be possible. There could be the removal of some clauses,” he said.
The government has taken several steps to pep up the business environment in the country, including slashing of corporate taxes, rollback of levy on global funds, injection of $10 billion into struggling state banks and easing of foreign investment rules.
On November 11, the Ministry of Finance invited suggestions from the industry and trade associations for Budget 2020-21, with regard to changes in direct and indirect taxes.
“Your suggestions and views may be supplemented and justified by relevant statistical information about the production, prices, revenue implication of the changes suggested and any other information to support your proposal,” said a circular. It also hinted at phasing out of some taxes. “The government policy with reference to direct taxes in the medium term is to phase out tax incentives, deductions and exemptions while simultaneously rationalising the tax rates. It would be also desirable that while forwarding the suggestions, positive externalities arising out of the said recommendations and their quantification are also indicated,” the government circur said.