Dividend Tax

Dividend is defined as the share of profits received by a stockholder or by a policyholder in a mutual insurance society. A dividend tax is defined as an income tax on dividend payments to the stockholders/shareholders of a company. It is the income tax on the payments made as the dividend to the shareholders of the company paying the tax. The dividends are given to people who own stocks, bonds, or mutual funds.

The dividends are taxed in two ways either as ordinary income or as qualified dividends. The tax on qualified dividend is levied if the investor has held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. The rate of tax is 5% or 15% depending on the individual's income tax rate.

There is a controversy relating to the dividend tax. This is because dividend is a part of the profit of the company. The profit given is nothing but the income of the company and a tax is paid on that income. Next when the dividend is paid to the shareholders, a dividend tax is levied on them and so there is double taxation on the same income. Therefore once tax is paid by the company and then the shareholder pays the tax on the same amount as well.

Due to the controversy the dividend tax has become one of the major issues of debate in the financial market. As a result many of the countries are taking steps for abolishing the dividend tax as because the double taxation is not considered good for the economy. The dividend tax also poses a problem for the senior citizens and the retired personnel. Hence the financial experts all over the world are of the opinion that dividend tax should be abolished in order to develop the economy and a fair practice of taxation should be followed.

Questions

• What is a dividend tax?
• What is the controversy over the dividend tax?