Dividend tax hike to hit MNCs

MUMBAI, FEB 29: The proposal to hike the tax on dividend payout will hurt the MNCs badly. It is well-known that MNCs operating in the country like to remit huge dividends back to the parent. While on the one hand the Government has been encouraging MNCs to increase their stake to 75 per cent, the new budget proposal would make MNCs think twice about such initiatives, hereafterwards. Probably, they would cut the dividend rate from now on and resort to bonus issues. The implications of the capital gains tax in such a case needs to be examined.

Many of the FMCGs and pharma companies from the MNC stables would be affected. Of course there are Indian companies also which pay high dividend. HLL, Punjab Tractor, Ranbaxy, HDFC, Hindalco, Hero Honda, Grasim, Indian Oil, Cipla, Amara Raja Batteries, Asian Paints, Bharat Petroleum, HPCL, Bajaj Auto to name a few. Now the company managements and traders will have to rethink their strategies.

The attraction of dividend stripping and speculation during no delivery period would now get subdued. Last year one saw a number of companies declaring bumper dividends, whenever there was windfall gains. The companies would now stop resorting to this route. The traders would be robbed of great news related trading opportunity, whenever a company is likely to book high profits by selling facilities or real estate.