Designing Investor Friendly Dividend Tax Framework

Abstract

In the context of shifting back dividend tax incidence from distributing company to the shareholders in the Finance Act 2020, the author examines the disadvantages that retail investors would face because of clubbing dividend income with nondividend income which is detrimental to encouraging long term retail participation in the equity market. By analysing classical dividend theories and dividend tax system in US and UK, the author suggests a progressive dividend tax system.