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Friday, Mar 08, 2002

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Why PSUs fear to tread where private cos rush in

Shaji Vikraman

NEW DELHI, March 7

THE exceptional haste with which corporate India went about declaring interim dividends to avoid payment of taxes by shareholders after March 31 has highlighted a clear divide between state-owned companies and banks and corporates with relatively high stakes held by promoters.

The thin divide is on the issue of what many would view as ethical practices.

In the eyes of several private corporates, the payment of interim dividend before March 31 is more of an attempt at tax planning to ostensibly benefit shareholders.

But for others like state-owned companies and banks, the perception is that of tax avoidance, something which they are uncomfortable with - especially when the promoter is the Government.

For, in the controversy that was kicked up over the interim dividend issue, it is interesting to note that not a single State-owned company or a bank figured in the long list of companies which had either announced an interim dividend or served notice to fix the record date for payment of dividend.

Is it by sheer default because this class of companies are not nimble enough to react swiftly to events or that enhancing shareholder wealth is not the overriding motto for them as it is for the private corporate sector?

Or is it that the PSUs are uncomfortable with such practices where the line dividing tax planning and tax avoidance is thin?

Or the fact that the major promoter is the Government is not an incentive to boost shareholder wealth?

The ethical issue does play on the minds of the PSUs, according to the director of a listed PSU.

"Indeed, it is a matter of ethics for us. The move to shift the incidence of taxation from the company to the recipient does not harm the company,'' he said.

In any case, the change in the incidence of taxation does not affect the promoter of the PSUs, the Government, for the dividend paid by the listed PSUs is obviously not taxed when it reaches the hands of the largest shareholder.

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