Page 90 - 臺大管理論叢第32卷第1期

The Effects of Halved Imputation Tax Credits and Wealthy Tax on the Dividend Policies of Listed Companies:
A Comparative Study of Family and Non-Family Firms in Taiwan

The Effects of Halved Imputation Tax Credits and Wealthy Tax on
the Dividend Policies of Listed Companies: A Comparative Study
of Family and Non-Family Firms in Taiwan

Ming-Chin Chen, Department of Accounting, National Chengchi University
Chia-Wen Chang, Department of Accounting, Tamkang University

1. Purpose/Objective

To stimulate investments and enhance competitiveness in the global capital market,
the Taiwanese government has undertaken a series of tax reforms to reduce corporate
income tax, such as implementing the full imputation tax system in 1998 and reducing tax

rate from 25% to 17% in 2010. However, following these tax cut measures, fiscal deficits
in Taiwan have been progressively worsening. To resolve the problem, the Taiwanese
government has replaced the full imputation tax system with the partial one, and also has
increased its highest personal income tax rate from 40% to 45% (hereafter the wealthy

tax) since 2015. Specifically, under the 2015 tax reform, individual investors can only
receive 50% of the imputation credits on dividend income (hereafter halved imputation
credits) if compared with under the previous full imputation system; moreover, individual
investors with the highest individual tax rate should pay additional 5% dividend tax if they

receive the dividend income. Hence, for individual investors, the tax burdens of dividends
increase.
The objective of this study is to examine the effects of halved imputation credits and
the wealthy tax on the corporate dividend policies of listed companies in Taiwan, and to

investigate whether family and non-family firms respond differently to the impacts of the
2015 tax reform. According to the tax clientele hypothesis, we conjecture that firms will
decrease dividend payout ratios if their shareholders' income tax on dividends increase.
However, prior literature also finds that firms tend to maintain a stable dividend policy to

prevent non-tax costs (Lonie, Abeyratna, Power, and Sinclair, 1996; Balachandran, 1998;
Travlos, Trigeorgis, and Vafeas, 2001; Asimakopoulos, Lambrinoudakis, Tsangarakis,
and Tsiritakis, 2007). Under these conflict research findings of dividend policy, Chiu,
Yu, and Wang (2017) and Wang, Chang, and Yang (2017) have examined the effect of

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