Implications of Corporate Dividend Policy on Corporate Taxation: A Study on Selected Listed Pharmaceuticals Companies in Bangladesh

Abstract

Abstract: Corporate dividend policy is related with corporate tax liability. Tax liability of companies may vary depending on the payment of dividend. Effective corporate dividend policy can reduce corporate tax liability. Thus, effective corporate dividend policy can help corporations maximize shareholders’ wealth by reducing effective tax rate. Tax liability may increase or decrease depending on the dividend payment of a company. The objective of this study includes justifying the implications of Corporate Dividend Policy on Corporate Taxation in case of listed pharmaceuticals companies in Bangladesh. In this study 6 listed pharmaceuticals companies in Bangladesh have been included and it has been found that when those companies paid dividend at prescribed level as per corporate tax law, they got tax rebate on their regular tax rate. Thus, after deducting the tax rebate those companies paid tax liability at reduced rate and this eventually lessened effective tax rate. Companies may ensure payment of dividend in away, so that retained earnings can be used for future investment opportunities as well as the tax burden becomes logical. They should make balance between dividend policy and tax liability to maximize the wealth of shareholders.