Alin Brendea, Prime Transaction: Dividend tax increase mitigates one of the competitive advantages of the local stock exchange

Increasing the dividend tax is seen as one of the methods of increasing the state's tax revenues. Basically, a year ago, the dividend tax was 8%, which means that, in a short period of time, we are witnessing a doubling of it, Alin Brendea, a stock market analyst at Prime Transaction, recently wrote in a report.

Increasing the dividend tax to 16% will reduce the attractiveness of dividend stocks listed on the Bucharest Stock Exchange (BVB). "If 92 lei of gross dividend distributed was collected a year ago, now the net dividend collected will be 86 lei. As such, the net dividend yield decreases," the analyst wrote.

Therefore, one of the competitive advantages of the local stock market is being mitigated, namely the high yields of net dividends received by investors. "Years in a row, the Romanian market has been ranked among the top European stock exchanges in terms of the dividend yield distributed by the most important listed stocks (which make up the BET index). It was perhaps the most important sales message of the local market, in search of new investors," says Alin Brendea.

In his opinion, once the measure is implemented, a trend towards smaller dividend distributions is likely to emerge, with shareholders opting for more tax-advantaged methods of using the company's profits.

"Dividends could be replaced by granting free shares or share buybacks in order to cancel them," the stock market analyst also pointed out. However, it is not a large enough increase in taxation to overwhelmingly change the attractiveness of the local market for dividend-based investment strategies, Brendea says, adding: "There is also a bureaucratic advantage - equalizing tax rates (between dividend and profit) simplifies tax calculations."

One of the measures in the government program that should bring more money to the state budget to reduce the enormous deficit, which last year amounted to 9.3% of GDP, is the increase in the dividend tax from 10%, as it is currently, to 16% starting next year. The 10% rate came into effect at the beginning of this year.

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