Buyback tax breather a timely shot in the arm

Companies that had set the ball rolling on buybacks before the change in tax rates

The decision to not impose the new buyback distribution tax on companies that had already announced their repurchase programme prior to the Budget has come as a big relief for India Inc.

While the 20 per cent tax was announced in the Union Budget, it was applicable retrospectively from April 1.

Buybacks worth nearly ~15,000 crore by about 20 companies, including Wipro and Adani Ports & SEZ, were hit by the unexpected move.

On Friday, Finance Minister Nirmala Sitharaman said listed companies that had announced buybacks before July 5 — the day of the Budget — will be exempt.

Experts said the move provides the much-needed clarity on the fate of buybacks that were hanging in the balance since introduction of the tax.

“No buyback tax, on offers announced before July 5, is welcome. It provides clarity to firms on applicability of the tax on their buyback offers that had been announced Wipro Adani Ports BSE Welspun Corp KPR Mills* April 16, 2019 April 6, 2019 July 5, 2019 May 14, 2019 April 29, 2019 before the Budget proposal,” said Niranjan Govindekar, partner (tax & regulatory services), BDO India.

Frank D’souza, partner and leader of corporate and international tax, PWC, said the relief on buyback tax will help address past concerns.

The near three-month period between the Budget and relief, however, had put many companies in a spot. Some smaller companies, including KPR Mill, had withdrawn their buyback plans even as legal experts questioned the validity of the move.

Others such as Greaves Cotton and SKP Securities wrote to the markets regulator Securities and Exchange Board of India (Sebi), seeking 10,500 1,960 459 390 263 clarity on whether they can cancel or revise the terms of their buybacks.

Sources said Sebi raised various issues created by the retrospective applicability of the buyback tax with the finance ministry.

“Many firms had raised valid issues with Sebi over the new buyback tax, for which there was no easy solution. Sebi forwarded all queries to the government. On the one hand, companies were fair to seek cancellations. On the other, it would have impacted public shareholders, who possibly bought shares after the announcement was made,” said a legal expert. He added that the latest move provides relief to all stakeholders.