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Companies scramble to avoid dividend tax

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Listed entities are working to minimize the tax burden of the ultimate beneficiary through various mechanisms. 

With the recent tax changes, a large 15% Withholding Tax (WHT) has been placed on Dividend Income. Dividends are exempt from another round of Withholding Taxation when they are paid out of funds received as dividends. So far listed entity Commercial Development PLC has brought forward their interim dividend payment payable on January 13 2023 to payment in December 2022. The tax implications of such a move remain unclear.

With a 15% Withholding Tax and no capital gains tax for listed entities, companies will likely resort to share buybacks, in-specie dividends of subsidiary holdings, scrip dividends and other mechanisms to avoid the tax implications. Company Board members speaking on the condition of anonymity noted that the tax increases were not particularly well thought out and entities likely to pay out large cash dividends are more inclined to wait until there is reform in the system.

Ceylon Beverage Holdings has announced a dividend of Rs 23 per Ordinary Share that shall be paid out of funds that have accumulated through dividends received and as such shall not be subject to withholding tax.

Given the high cost of financing, it is likely that firms with large debts on their balance sheets shall resort to discounted rights issuances to their shareholders. Shareholders making capital gains on the newly issued stock shall remain untaxed under the current tax code.

Companies have also called on the stock exchange to work with the Central Bank and the relevant legislators to allow the payment of dividends directly in foreign currency. Locals are allowed to maintain foreign currency accounts and the payment of a dividend in foreign currency should be facilitated through the Central Depository System. TP

Friday, January 20, 2023 – 01:00











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