Perfectly Agree Parag
Share buybacks have lost lustre after FM proposed 20% tax on buybacks
The 20 per cent tax on share buybacks, introduced in the Union Budget for 2019-20, has altered the way companies reward their shareholders. Companies have repurchased shares worth Rs.16650 Cr on so far in 2019-20, a 56.2 per cent fall as compared to the same period of 2018-19. The bulk of the buybacks done in 2019-20 were announced before the Union Budget in July 2019 when Finance Minister Nirmala Sitharaman had introduced the buyback tax with the intention of removing the tax arbitrage between dividends and buybacks. Buybacks worth less than Rs. 2000 Cr have taken place during the second half of 2019-20. Tax experts blame the change in tax dynamics for the sharp drop in buybacks. Companies are expecting the rollback of the buyback tax in the Union Budget for 2020-21.
Buyback amount during April’19-January’20
|Year| |Amount (Rs Cr|
Considering above report, this activity by Granules management is surprising. As the tax outgo remains similar even a one time dividend could have benefited shareholders. Although my view is that the accumulated money by JV exit could have been used in a better manner.