ACCA Advanced Financial Management (AFM) Practice Exam

What is the current top rate of tax on both dividends and capital gains?

1. 15%

2. 20%

3. 25%

4. 30%

The correct answer is: 20%

The current top rate of tax on both dividends and capital gains being 20% reflects the tax policy established in many jurisdictions, particularly in the context of taxation for higher income earners. This rate is commonly applied to individuals whose income exceeds a certain threshold. Dividends are typically taxed at this rate as they are considered investment income, while capital gains, which arise from the sale of assets, are treated similarly to ensure consistency in the taxation of investment returns. The simplification of having a uniform rate for both forms of income can also help in reducing tax planning complexities and improving compliance. The rationale behind a 20% taxation rate is to balance the need for government revenue with the encouragement of investment. It ensures that investors still realize a net return on their investments, which is crucial for economic growth and stimulating the capital markets. In contrast, the other rates mentioned might not align with current standards or policies for taxation on dividends and capital gains, which is why they are not applicable. The consistency of the 20% rate underlines its acceptance and implementation across a wide range of financial contexts, making it the correct answer in this case.