With the government’s decision to not implement 20 per cent buyback tax which was imposed in this year’s Budget, might benefit companies which have active buyback programmes.
In a press briefing on September 20, Finance Minister Nirmala Sitharaman announced that, “In order to provide relief to listed companies which have already made a public announcement of buyback on or before July 5, 2019, it is provided that tax on buyback of shares in case of such companies shall not be charged.”
Apart from Infosys, other IT companies such as TCS, Wipro and HCL technologies would also go ahead with their announced buyback programmes. Moreover, other companies such as Orbit Exports, Aurion Pro Solutions, Action Construction Equipments, Nava Bharat Ventures, GE Shipping, and GEECEE Ventures could also explore the route that will not attract tax if announced before the July 5 cut-off date.
Gautam Duggad, Head of Research – Motilal Oswal Financial Services, said, “It is only one-time offer kind. Companies will have to pay buyback tax if they are going the buyback route now.”
According to analysts, IT sector does not have much to gain from a corporate tax reduction. As per the recent announcement, corporate tax has been brought down to 22 percent from 30 percent for all corporate and 15 percent for manufacturing firms.
According to Duggad, while it is one of the biggest reforms, IT sector does not have much to gain from this as they are dependent on external factors rather than internal.
The IT sector business is dependent on volatility in the external markets such as the US, UK, and Europe than the domestic. Close to 85-90 percent of the business comes from these markets, and the India market accounts only for about 10-15 percent.
(With input from agencies)