Buyback Tax - Trustline Blog

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Buyback Tax - Trustline Blog

• Why the concept of buyback tax is fundamentally
  flawed
• When KPR Mills cancelled its proposed buyback
  last week, it was the first signal that Indian
  companies and investors were unhappy with the
  buyback tax imposed in the Budget 2019.

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Buyback Tax - Trustline Blog

• Why the buyback tax?
• In the last 3 fiscal years, the average annual
  buyback value was Rs.48,000 crore. That is a 10
  fold increase after the 10 tax on dividends in
  the hands of shareholders was introduced for
  large shareholders in Budget 2016. This had led
  to a big shift towards companies opting for
  buybacks as an option to return money to
  shareholders. The government felt that tax-free
  buyback was distorting the scene and providing an
  arbitrage to shareholders, especially the
  promoters. It is to curb arbitrage that the
  budget introduced this tax.

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Buyback Tax - Trustline Blog

• A flawed concept
• The concept of tax on buybacks is flawed for a
  number of reasons. Firstly, unlike what the
  government believes, discouraging buy-backs will
  not encourage investments. That depends on risk
  and ROI. Buybacks offered a profitable exit to
  minority shareholders and that route has also
  been blocked. Thirdly, the idea of taxing
  buybacks at 20 of difference between buyback
  price and issue price ignores the cost of
  acquisition of the investor and puts an
  unnecessary burden. Lastly, capital decisions are
  best left to the boards