Question

Discuss how corporate tax and individual income tax affect corporate dividend policy

Answer 1

Answer :- The corporate dividend policy plays an important role in the financial decisions, therefore, it should be properly framed. Time to time dividend policy should be reviewed and necessary changes be made. One of important factor affecting the dividend policy of corporate (company) is taxation. High corporate taxation reduces the earnings of corporates and consequently the rate of dividend is lowered down. If the rate of income tax on individuals are high and corporate are subject to lower tax then rate of dividend is quite high as the earnings of corporates will be quite more. Sometimes government levies dividend-tax on distribution of dividend beyond a certain limit. It also affect the rate of capital formation.