B Mirror Report: The government has decided to relax additional tax penalties related to dividend distribution for companies listed on the stock market in the proposed budget for FY2026-27, a move expected to significantly reduce the tax burden on many listed firms.
Under the existing law, listed companies are required to distribute at least 30 percent of their profits as dividends. Companies failing to meet this threshold are subject to an additional 10 percent tax on their entire retained earnings.
The proposed budget introduces two major changes to this provision:
- Banks, insurance companies, leasing firms and financial institutions will be exempt from the additional tax penalty.
- Instead of imposing the extra tax on the entire retained earnings, the 10 percent additional tax will be applied only to the shortfall between the declared dividend and the mandatory 30 percent dividend requirement.
For example, if a company distributes a dividend equal to 10 percent of its profits, the shortfall from the required 30 percent would be 20 percent. Under the new rules, the additional tax will be imposed only on this 20 percent gap, rather than on the remaining 90 percent of retained earnings as required under the current law.
The government has also retained the existing framework for bonus dividends. At present, a listed company cannot issue bonus shares exceeding its cash dividend in a fiscal year. If bonus shares exceed the cash dividend, a 10 percent tax is imposed on the excess amount.
However, the proposed budget provides an exemption for banks, insurance companies, leasing firms and financial institutions, which will no longer be subject to the additional tax penalty on bonus dividends.
