Double error

While journalists and columnists were wasting time and space on trivial matters such as the spelling of a four-letter word and the image to be depicted on a flimsy coin of worthless alloy, it is incredible that no one noticed what must be the PM's biggest gaffe to date.

The Times (February 20) quoted the PM as having said that "the Lm37 million profit posted by HSBC meant that the government would be receiving Lm13 million in tax from the bank and more was to be made through tax when dividends were paid".

When dividends are distributed by any company that is taxed at 35 per cent, the recipient receives the dividend net of 35 per cent tax, which would have already been paid by the company when the profits were originally posted. Since 35 per cent is the highest percentage of tax payable, a shareholder receiving a dividend will never have to pay more tax on that dividend, as the maximum tax (35 per cent) has already been deducted in the year when the profits were posted.

On the contrary, a shareholder receiving dividends has the option of declaring these in his tax return and claiming a refund for the tax already paid by the bank if his tax rate falls below 35 per cent. In other words, though at face value it may appear that the state will be replenishing its coffers when dividends are distributed, the exact opposite is true, with the Inland Revenue forfeiting part of what it has already garnered at an earlier stage!

As anyone mildly familiar with accounting well knows, the counting of any expenditure as revenue leads to a double error. If the PM, as Minister of Finance, has been preparing budgets on this type of reckoning, his forecasts may need to be revised.

The fact that no journalist or other politician seemed to have noticed this blunder is indeed a damnation to them all!