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Need to rationalise Dividend Distribution Tax: CII

Mar '07
Dividend Distribution Tax (DDT) needs a complete overhaul, said CII in a Press Release issued. The apex Industry Association is of the view that DDT is double taxation and in some cases multiple taxation. Jurisdictions across the globe do not subject dividend to distribution tax or its equivalent but tax dividend income and allow rebate/ credit to the extent that dividend is distributed, said CII.

CII has written to the government following the Union Budget, highlighting this issue and with special emphasis on the problem being faced by the country's infrastructure developers on the incidence of multiple dividend distribution tax (DDT) under section 115-O of the Income Tax Act at each layer of holding –subsidiary chain till it reaches the prompters/shareholders, said the release.

Under the current provision, a domestic company is liable to pay DDT @ 17% on the amount of divided distributed by it in addition to the normal tax on profits of the company. This incidence of 17% is applicable at each stage when a subsidiary company declares and distributes dividend to the holding company and the holding company in turn distributes dividend to the shareholders, explained the CII release.

Infrastructure projects currently under the PPP model or otherwise are carried out through Special Purpose Vehicles (SPV) as mandated by the Government of India. For each project under its development a holding company has a separate SPV to develop that particular project. Hence the company, which undertakes infrastructure project in the areas of Roads, Airports, Seaports, Power Projects, etc will be having a number of such SPVs which are wholly owned subsidiaries of the holding company.

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