FM's tax cut: Buyback relief for firms as retrospective rule goes

About 18 cos had announced buybacks worth nearly Rs 15,000 crore between April 1 and July 5

The government’s decision to not impose the new buyback distribution tax on companies that had already announced their repurchase programme prior to the Union 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, the start of a new financial year.

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

On Friday, Finance Minister Nirmala Sitaraman said listed companies that had announced buyback before July 5, the day of the Union Budget, will be exempt.

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

“No buyback tax on offers announced pre-July 5 is a welcome move. It provides clarity to companies on applicability of the tax on their buyback offers which had been announced before the Budget proposal,” Niranjan Govindekar, partner- tax and regulatory services, BDO India.

Frank D'Souza, partner and leader corporate and international tax, PWC said the relief on buy-back tax, will help address past concerns.

The near three-month time between the budget and relief, however, had put many companies in a spot.

Some smaller companies, including KPR Mill had to withdrew their buyback plans even as legal experts questioned that validity of the move. Others such as Greaves Cotton and SKP Securities wrote to market regulator Securities and Exchange Board of India (Sebi) seeking clarity on whether they can cancel or revise the terms of their buybacks.

Sources said Sebi raised the various complications created by the retrospective applicability of the buyback tax with the Finance Ministry.

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

Experts said many companies will be able to set the ball rolling again on their buybacks. Also, companies that announce buybacks going ahead will factor in the new tax.

The buyback tax was introduced in the budget to plug the tax arbitrage between dividends and buybacks.

Since the introduction of the 10 per cent the additional dividend distribution tax (DDT) in 2016-17, many companies had started rewarding their shareholders by way of buybacks. Following the tax, effective tax rate on dividend payouts had become 20.6 per cent. The new buyback tax, many say, level the playing field.

Companies that set the ball rolling on buybacks before tax change
Company	Board approval date	Proposed amount (Rs cr)
Wipro	Tuesday, April 16, 2019	10,500
Adani Ports	Saturday, April 06, 2019	1,960
BSE	Friday, July 05, 2019	459
Welspun Corp	Tuesday, May 14, 2019	390
KPR Mills*	Monday, April 29, 2019	263
Greaves Cotton	Tuesday, February 05, 2019	227
Sasken Technologies	Tuesday, April 23, 2019	169
Responsive Industries	Wednesday, October 17, 2018	159
Star Cement	Friday, June 21, 2019	102
Eris Lifesciences	Thursday, March 07, 2019	100
Triveni Engineering	Wednesday, March 06, 2019	100
Vaibhav Global	Thursday, May 30, 2019	72
Smartlink Holdings	Friday, June 14, 2019	55
Gandhi Special	Tuesday, May 28, 2019	49
Elegant Marbles	Tuesday, May 28, 2019	16
SKP Securities	Saturday, April 27, 2019	7
Vyapar Industries	Friday, June 21, 2019	5
*Withdrawn; Source: Prime Database