THE IMPACT OF THE 2009 INDONESIA’S DIVIDEND TAX CUT ON DIVIDEND PAYMENT

I Wayan Agus Eka

Abstract


On January 1, 2009 the effective tax rate for individual-recipient dividend fell significantly from 35% to 10%. This paper investigated the impact of the dividend tax cut policy on dividend payment in three aspects i.e. extensive margin, intensive margin and dividend per share amount, an adoption from Chetty and Saez (2004) approach. I used publicly available data provided by The Indonesian Stock Exchange and The Indonesian Central Securities Depository. I found that one year after the tax cut policy, the fraction of the firms paying dividend increase and reach its peak in 2011. From intensive margin approach, the percentage of firms that increase their dividend per share amount also increase one year after the policy. Using regression analysis, this paper also found that the tax cut policy increased the dividend per share amount by 35.03. This study, to my knowledge, provides the first empirical evidence of the effect of dividend tax cut policy and concludes that the policy has positive impact on dividend payment in term of fraction of firms paying dividend, fraction of firms increasing their dividend and the nominal amount of the dividend per share.


Keywords


dividend; tax cut; dividend policy; dividend payment;

References


Asteria. (2008, July 4). Pajak dividen ganggu industri [Tax on dividend harms industry]. Inilahcom. Retrieved July 31, 2014, from http://m.inilah.com/read/detail/36820/pajak-dividen-ganggu-industri

Blouin, J.L., Raedy, J.S., and Shackelford, D.A. (2004). Did dividends increase immediately after the 2003 reduction in tax rate? NBER Working Paper Number 10301.

Chetty, R., and Saez, E. (2004). Do dividend payments respond to taxes? Preliminary evidence from the 2003 dividend tax cut. NBER Working Paper Number 10572.

Law of The Republic of Indonesia Number 36 Year 2008 Concerning The Fourth Amendment of Law Number 7 Year 1983 about Income Tax (in Indonesian). Retrieved November 1, 2013 from http://www.pajak.go.id/dmdocuments/UU-36-2008.pdf

Marga, Cicilia, S., Prianti, M., and Rosa, E. (2008, June 27). Masih terganjal soal PTKP, pajak dividend, dan warisan [The new tax law draft still debate about individual allowance, dividend tax and inheritance tax]. Harian Kontan. Retrieved July 31, 2014, from http://pajak.com/index.php?option=com_content&task=view&id=1122&Itemid=48

The Directorate General of Taxes. (n.d.).Main amendments in the Income Tax Law (in Indonesian). Unpublished document.

Wang, C.F., and Guo, Y. (2011). Do dividend tax cuts lead firms to increase dividends: Evidence from China. China Journal of Accounting Research, 4, 197-209.


Refbacks

  • There are currently no refbacks.


Copyright (c) 2019 JURNAL PAJAK INDONESIA (Indonesian Tax Journal)