Scrap LTCG, tax on buybacks, dividends: What Street wants amid market gloom

The Street is abuzz with calls for doing away with the tax on long-term capital gains, share buybacks, and dividend income received by shareholders as a last-ditch effort to improve the dismal sentiment among market participants. Many have taken to social media to express their demands

Mohandas Pai, former CEO and board member at Infosys, made a pitch for removing the tax on share buybacks. “Investors have lost Rs 35 trillion but bad tax policies are penalising open market buybacks of shares by companies," he said in a tweet on Wednesday.

Companies such as Sun Pharma, Emami, Supreme Petrochem, Thomas Cook, and SP Apparels have announced or proposed buybacks recently. This is in the backdrop of a significant correction in stock prices over the past few days. The 20 per cent tax on buybacks introduced in the last year's Budget could dissuade more companies from announcing similar initiatives.

Buybacks involve repurchase of shares either through the open market or through the tender route. Share buybacks may help shore up earnings per share and return on equity and boost shareholder confidence about the company's future prospects.

The clamour for removing long-term capital gains (LTCG) tax arising on sale of listed equity shares is also back on the agenda of market players.

"To arrest the fall in the Nifty, you may want to consider today removal of long term capital gain tax on equity, cut in IT by 3 per cent across the higher slab," tweeted Aditya Birla Sun Life AMC chief executive A Balasubramanian.

The then finance minister, Arun Jaitley, had introduced the tax in the 2018 Budget to be applicable at 10 per cent on gains of over Rs 1 lakh for a holding period of over one year.

This year's Budget shifted the burden on paying tax on dividends from companies to shareholders. The dividend income is now added to the taxable income of the recipient and taxed at applicable rates. This has meant higher tax outgo for high net-worth individuals and promoters who would have to pay tax at a maximum marginal rate of 42.7 per cent, thus reducing cash in hand. Earlier, it was hoped that the tax in the hands of shareholders would be at a concessional rate.

"The government should scrap LTCG. Most stocks are down from the levels seen on January 31, the cut-off date for grandfathering, and investors are likely to book losses and carry forward the losses for the next eight years. Tax on buybacks and dividends should go as well. The government is hardly getting any money from these initiatives and it is better they are done away with for good," said Deven Choksey, managing director, KR Choksey Investment Managers.