The Impact of Tax Deduction Ratio Reduction on Dividend Payouts Under the Integrated Tax System: Evidence From Taiwan

Abstract

Taiwan passed the Robust Financial Administrative System in 2014. Regarding the imputation tax system, the tax credit of imputation was reduced from 100% to 50%, effective in 2015. In other words, contrary to the year 2014, only the half of tax paid by companies can be used by individuals to offset personal income taxes under the new system. The purpose of this study is to investigate whether dividend payouts are influenced by this tax reform. In addition, whether the companies known for stable dividends have changed their dividend payout ratios. Results show that the dividend payout ratios decreased after the tax reform was reduced, indicating that companies used this tax reform to enact tax planning for stockholders. This study also finds that companies offering stable dividends maintain similar dividend policies in the dividend payout ratios.