Some companies have sought clarity on the applicability of the buyback tax on their offerings, which had been announced before the Budget proposal.In the past three years, publicly traded firms bought back shares worth ₹1.43 trillion
Blindsided by the government’s budget proposal to tax share buybacks by listed companies at 20 percent, a couple of listed companies that had announced their buyback plans before the budget have written to the finance ministry seeking clarity on the application of the tax on their buyback offerings.
Exchange filings show that in the last one week at least two companies have approached the ministry of finance and markets regulator Securities and Exchange Board of India (Sebi) seeking clarity on the applicability of the buyback tax on their offerings, which had been announced before the Budget proposal on July 5.
Companies that have sought clarity on the tax include Greaves Cotton Ltd and SKP Securities Ltd, which together are looking to buy back shares worth Rs 235 crore.
“The company has made a representation before the Ministry of Finance seeking clarifications amongst others, on the applicability of the proposed tax on the Company, as the company has prior to the introduction of The Finance (No .2) Bill 2019 made the Public Announcement and submitted the Draft Letter of Offer to Sebi without envisaging or providing for the effect of Buy-Back Tax,” said SKP Securities in an exchange filing on Monday.
SKP Securities has also sought guidance from Sebi on whether the buyback can be postponed or cancelled in view of the buyback tax announcement made subsequent to the commencement of buyback period.
Greaves Cotton made a similar filing with stock exchanges on 16 July.
Share buybacks gained prominence with listed companies after the government introduced a 10 percent tax on shareholders earning more than Rs 10 lakh through dividends, in addition to the 20 percent dividend distribution tax charged to the company. The 10 percent additional tax was introduced in the 2016 Union Budget.
With the additional tax on dividends, companies found share buybacks a more optimum route to distribute profits and surplus cash to shareholders.
In the past three years publicly traded firms bought back shares worth Rs 1.43 trillion.To be sure, on July 12 The Hindu Business Line, citing Finance Secretary Subhash Chandra Garg, reported that the government is looking into the applicability of the buyback tax including the possibility of grandfathering of share buybacks that are already underway.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.