NO INTERIM DIVIDEND?

Most companies in Nigeria may no more propose interim dividend for shareholders in the near future. This is because it has become less attractive to do so because of changed attendant tax payment rules.
Of course, any company that so wishes is still free to declare interim dividend with the authority of the Board of directors but, and here is the new catch, corporate tax due on such distributable profit must be paid before the interim dividend can be declared.
This means that a company declaring interim dividend may not only have to source and part with cash for such dividend but also part with 30% of the distributable profit as advance tax payment to the Federal Inland Revenue Service ( FIRS).
In addition, according to the amended Companies Income Tax Act (CITA) companies now declaring dividend must also supply the FIRS with details of the distributable profit from which the interim dividend is to be proposed, and details of particulars and holdings of shareholders who stand to receive the proposed interim dividend.
Meanwhile no company is to declare interim dividend from its working capital and more importantly, if there is reason to believe that after paying such dividend the company will be unable to service its debts and other contingent liabilities.
Of course, these new rules will make it quite unattractive for many companies to declare interim in the future even if unaudited interim figures show good enough performance and cash in the till.
Such reaction will not be unique to Nigeria. Recently in India, the government introduced additional tax on total dividends received by a single shareholder above a certain level with effect from April this year and this triggered a rush to declare dividend before the take off date.
The main attraction in interim dividend is that it helps to stagger the cash need to pay dividend on a good year because it pays no company to leave huge cash idle because it wants to pay dividend.
Now that attraction is diluted by the advance tax payment although the FIRS assures that such is deductible from the final corporate tax liability after shareholders approval of audited annual results.

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