February 4: It has been found that shareholders of companies distributing dividend income have been forced to pay tax thrice against the laws. Shareholders of banks, investment companies, hydropower companies, and other companies have been at the receiving end due to the multiple taxation.

However, investors and companies are not aware of this. As a result, stock investors are affected. Banks, investment companies, and some hydropower companies in Nepal have been investing in their subsidiaries and other companies. And, they are earning dividends every year from that. Those subsidiaries and other companies pay income tax, or corporate tax, for the first time. The investors then have to pay an additional 5 percent on the dividends they receive from those companies.

According to the Income Tax Act, no additional tax is levied on such income. However, the shareholders of such companies have been indirectly paying profit tax on such income.

No tax is levied if the related companies declare that the income is earned from the dividend. The shareholders of the company can take the dividend automatically without paying any tax. However, companies do not declare such earnings as separate dividends. Such income is included directly in the profit and loss account.

That is to say, such dividends of companies are also distributed in addition to the total dividend.

As a result, shareholders have been paying tax even on non-taxable dividends, experts say. However, companies have not paid corporate tax on such income.

Advocate Jyoti Dahal, a researcher in the securities market, said that investors in companies that earn dividends are hit by double taxation. He said that they have been hit hard especially by the companies.

“Companies that distribute dividend income can distribute the same income to shareholders tax-free. For that, the companies have to do separate audits,” he said, “But the companies have not done separate audits on such revenue. As a result, investors have to pay tax even on non-taxable dividends.”

He said such situation has arisen because of the carelessness of the companies. “This is not an issue related to the government. This is the issue of the companies.”

According to Dahal, the companies need to pay attention to this issue but the government should also intervene if needed.

Representatives of some companies admitted that their income is taxed for the third time because they do not conduct a separate audit of the income earned from dividend.

"We do not pay corporate tax on such income. However, dividends are declared in one lump sum,” said a company official.