The government is considering scrapping a dividend distribution tax in its annual budget this month, as part of efforts to boost investor sentiment, Bloomberg Television reported on Thursday, citing unnamed sources.
A senior finance ministry official described the news report as “speculative”, declining further comment.
Indian companies are liable for an additional tax on any amount distributed or paid out to shareholders. Before the introduction of the tax, shareholders were liable for taxes on the dividends they received, as is typical in many countries.
Scrapping the 15 per cent levy could increase net payouts and boost the attractiveness of Indian stocks, which have rallied by 20 per cent since Narendra Modi’s election triumph in May 2014 on hopes he will bring about an investment-led recovery.
In the run-up to last July’s interim budget, officials in the Modi government promised to jettison “bad taxes” including the dividend distribution tax, according to reports at the time.
A second finance ministry official said on Thursday that ditching the dividend tax was one of several demands made to the government by India’s business lobby.
He was non-committal on whether the government would accede to it. “Wait for the budget,” the official said.
The finance ministry is currently in lockdown mode as Finance Minister Arun Jaitley prepares to unveil his first full-year budget on February 28.