Has the budget singled out Harry J?

The government’s proposal to tax companies which do not pay one third of its profits as dividends to shareholders has triggered speculation that President Mahinda Rajapaksa has singled out business tycoon Harry Jayawardena in this exercise, analysts said.
President Rajapaksa, in his budget speech last Thursday said, “In the interest of infrastructure developments, I consider that every company should aim at a dividend payment of 50 percent of profit available for distribution. In order to encourage all companies to move in this direction, I propose that any company with a dividend payment of less that one third should be taxed at 15 percent for the difference between such one third and the dividend paid out.”

This proposal, an analyst told The Sunday Times FT, appears to have singled out Mr. Jayawardena when he decided on this proposal, because his companies such as Distilleries Corporation of Sri Lanka (DCSL), Aitken Spence and Lanka Milk Foods (LMF) are well known for paying lower dividends, compared to their profits year on year. He said that none of the other companies in the market is known for poor dividend payments.

A stockbroker said that such proposals will encourage more small timers to invest in the stock market, but at the same time also force firms to pay higher taxes.

Harsha Fernando, CEO SC securities told The Sunday Times FT that the government should not ‘interfere’ in the affairs of a company. “Certain firms will not want to distribute the income for good reason, such as expansion projects. To tax such companies is not a good thing,” he said.

Stock market analysts said that the tax will result in companies or shareholders being affected. “If a company pays a higher dividend to avoid the tax, the shareholders will have to fork out a higher withholding tax on the dividends paid to them. If the company pays a lower dividend they will have to pay a 15 percent additional tax to the government and it is just another revenue collection mechanism,” a stock market analyst said.