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Thursday, Mar 14, 2002

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SEBI move on interim dividends

A recent attempt by companies to declare interim dividend so as to avoid the shift of tax liability from company to shareholders has been thwarted by the Securities Exchange Board of India (SEBI) by directing refusal of curtailment of notice period of record date by the stock exchange. If the intention is to defeat attempt of companies with a view to help revenue, it is a mistaken one.

First, only interim dividend by listed companies would stand barred. Second, the revenue may not be able to get more tax, if the same dividend is declared `normal' after April 1, 2002 because of Form 15G from small shareholders and the lower rate of tax applicable for non-resident investors at 10 per cent or 15 per cent or even nil rate, in some cases as for Mauritius and UAE investments.

The net collection in the normal course will not be significantly more than the collections, which could be made on interim dividend, if permitted, before March 31 2002 by way of additional tax on interim dividend. This would also help bridge the fiscal deficit. There is a need for reversal of the stand SEBI has taken for this reason in the interest of the economy. Even in the interest of shareholders, such accelerated dividend should not be discouraged.

S. Rajaratnam


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