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<p>This study attempts to analyze the effect of major tax reforms implemented in the last decade in India on corporate payout and investment behaviour. Trend analysis of data from non-financial listed Indian firms (2016–23) revealed a sharp decline (rise) in dividend-paying (non-paying) firms, average amount of dividends, dividend payout ratio, number of dividend initiators, and large dividend-increasing firms post-DDT abolition in 2020, along with a sharp rise in dividend-terminating and dividend-decreasing firms. However, there was no substantial increase in share repurchases. Multivariate analysis also confirmed that DDT abolition adversely affected the amount of dividends, chances of dividend payment, the percentage change in dividends, and the likelihood of a large increase in dividends; but positively affected the chances of dividend termination, with no significant influence on share repurchases. The findings suggest that firms adapted their payout behaviour to suit the interests of rich and influential shareholders. The DDT abolition, coupled with the imposition of the buyback tax, failed to favour dividends over repurchases as the tax on dividends continued to remain substantially higher than that on repurchases for influential shareholders. The findings also show that post the substantial corporate tax rate reduction in 2019, increased profits largely bypassed their intended conversion into higher capex and R&amp;D across sectors, with only modest gains in the mining and electricity sectors. The rise in profits was not commensurate with changes in corporate investments. These findings underline the limited effectiveness of these reforms. Policymakers can leverage these insights to refine tax policies and ensure alignment with the intended economic objectives in the future.</p>

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Evaluating the impact of major tax reforms in India: empirical insights into corporate payouts, investments and policy effectiveness

  • 期刊论文

  • 发表日期：

    2025年12月15日

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  • Pankaj Sinha,
  • Amit Kumar

摘要

This study attempts to analyze the effect of major tax reforms implemented in the last decade in India on corporate payout and investment behaviour. Trend analysis of data from non-financial listed Indian firms (2016–23) revealed a sharp decline (rise) in dividend-paying (non-paying) firms, average amount of dividends, dividend payout ratio, number of dividend initiators, and large dividend-increasing firms post-DDT abolition in 2020, along with a sharp rise in dividend-terminating and dividend-decreasing firms. However, there was no substantial increase in share repurchases. Multivariate analysis also confirmed that DDT abolition adversely affected the amount of dividends, chances of dividend payment, the percentage change in dividends, and the likelihood of a large increase in dividends; but positively affected the chances of dividend termination, with no significant influence on share repurchases. The findings suggest that firms adapted their payout behaviour to suit the interests of rich and influential shareholders. The DDT abolition, coupled with the imposition of the buyback tax, failed to favour dividends over repurchases as the tax on dividends continued to remain substantially higher than that on repurchases for influential shareholders. The findings also show that post the substantial corporate tax rate reduction in 2019, increased profits largely bypassed their intended conversion into higher capex and R&D across sectors, with only modest gains in the mining and electricity sectors. The rise in profits was not commensurate with changes in corporate investments. These findings underline the limited effectiveness of these reforms. Policymakers can leverage these insights to refine tax policies and ensure alignment with the intended economic objectives in the future.