Abstract
Orientation: This study investigated the trend and composition of total payout distributed by companies listed on the Johannesburg Stock Exchange (JSE) over a period of tax reform.Research purpose: The aim was to investigate whether the payout methods post-2012, after the introduction of dividends tax, differed from pre-2012.Motivation for the study: Tax-related dividend literature predominantly explores the implications of differential taxes on dividends and of capital gains on dividends with a limited focus on total payout. The setting to investigate the total payout of JSE-listed companies is also unique as a result of South African tax reform.Research design, approach and method: Descriptive statistics and a mixed-model analysis of variance were employed to describe the payout methods (dividends, capital distributions, additional shares and share repurchases) in rand value and frequency of election. The population comprised of 116 JSE-listed companies for the financial reporting periods 2006–2018.Main findings: Ordinary dividends increased post-2012 whilst other payout, except for additional shares, decreased post-2012. An increase in scrip dividends (additional shares with a cash alternative) post-2012 confers flexibility to shareholders to manage their own financial needs, including tax considerations.Practical/managerial implications: The policy implication is that the increasing use of ordinary dividends as a payout method could inform future government initiatives to generate revenue or provide tax incentives for saving.Contribution/value-add: Submitted as the first article to investigate total payout of JSE-listed companies over a period of tax reform to provide evidence that payout policies adjusted based on the differential tax on dividends and capital gains.
Highlights
The introduction of dividends tax in South Africa during 2012 resulted in the possibility of tax arbitrage arising for the first time as exemption is only afforded to certain shareholders (Marcus & Toerien 2014:100)
The trend and composition of payout during the post-2012 period was expected to differ from the pre-2012 period based on seven propositions informed by tax reform
This study submits support for five propositions indicative that the trend and composition of total payout of selected Johannesburg Stock Exchange (JSE)-listed companies differed during the post-2012 period
Summary
The introduction of dividends tax in South Africa during 2012 resulted in the possibility of tax arbitrage arising for the first time as exemption is only afforded to certain shareholders (Marcus & Toerien 2014:100). Diverse shareholding in companies could result in conflicting tax preferences amongst different shareholders. Investigating how companies respond when faced with the conflicting tax preferences of shareholders can be of interest to researchers of taxation, researchers of corporate governance, investors, regulators and those charged with fiscal responsibility (Badenhorst 2017:103). Global literature on the effect of taxes on payout policies predominates in the United States of America and lacks emphasis in other countries (Baker & Weigand 2015; Geiler & Renneboog 2015; Jacob & Jacob 2013). A gap in literature on the effect of taxes on payout policies in developing economies in sub-Saharan Africa is evident (Arko et al 2014). Since 2011, tax reform in South Africa has offered a unique tax reform setting occasioned by the reform introduced by the Income Tax Act, No 58 of 1962 (Republic of South Africa 1962), http://www.actacommercii.co.za
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