THIS refers to letter about ‘Double taxation’ (March 5). Double taxation is when the same income is taxed twice in the same hands. In the case of corporate profits companies pay tax on their own income and only deduct (and not pay) tax from dividend distributed on account of the liability of shareholders.

Companies and shareholders are different legal entities. Therefore, it cannot be termed ‘double taxation’. Exemption of dividend income from taxation can, however, be pleaded on different grounds like it will encourage business in organised sector.

However, encouragement to dividend distribution hampers capital formation. It should a conscious and well-thought-out-policy decision as to whether we want to appease the shareholders, depriving the companies of reserves for future investment.

The prudent way will be not to intervene in market decision making by keeping tax policy neutral in such matters.

Salman Nabi

Islamabad

Published in Dawn, March 18th, 2019