The Hindu Business Line : DDT: Whither the level-playing field?

The Dividend Distribution Tax (DDT) is proposed to be increased to 15 per cent by the Finance Bill, 2007 with effect from April 1. Before this proposed amendment, companies were liable to pay DDT at 12.5 per cent plus surcharge and education cess resulting in an effective rate of 14.025 per cent. Pursuant to the proposed amendment, the effective rate would rise to 16.995 per cent.

With the increase effective April 1, all dividends declared, distributed or paid after that date will suffer the higher rate of tax.

Let us analyse the financial impact of the proposed change in rate with the help of the accompanying tables: As is evident from the tabular analysis, hitherto there was no difference in the effective tax rate in the case of an Indian and a foreign company. However, with the proposed amendment, the effective tax rate in the case of an Indian company will be higher compared to a foreign outfit. This highlights the fact that foreign companies will, in fact, pay less tax and hence will bear a lower burden than their domestic counterparts.

(The author is Senior Manager, Deloitte Haskins & Sells, Mumbai.)

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