Buyback tax prompted by instances of tax arbitrage on listed shares: CBDT

KR Srivats New Delhi | Updated on July 09, 2019 Published on July 09, 2019

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This Budget was more about toning up the tax administration: Kamlesh Varshney, Joint Secretary

The Central Board of Direct Taxes (CBDT) has virtually ruled out a rethink on the Budget proposal to introduce buyback tax on listed companies, stating that the move was aimed at closing the tax arbitrage adopted by listed companies.

“Share buyback is nothing but distribution of dividends. Companies (listed) are buying back shares in a big way because they find it tax-efficient instead of distributing dividend.

That means there is an arbitrage and arbitrage should not be there under tax policy and that is what the Budget has done,” Kamlesh Varshney, Joint Secretary, CBDT, said at a post-Budget conference organised by FICCI here on Tuesday.

He was responding to a question on why should the government burden companies with buyback tax, especially at a time when industry was pitching for removal of dividend distribution tax (DDT).

The Budget for 2018-19 announced last Friday extended the concept of 20 per cent buyback tax to listed companies. Already, a buyback tax of 20 per cent is applicable on buyback effected by unlisted companies.

DDT, a different issue

As for the issue of DDT, Varshney noted that CBDT-set up task force is working on the structural changes on whether the system should have DDT or dividends be taxed in the hands of shareholders. This aspect should, therefore, not be mixed with the concept of buyback tax.

Meanwhile, the Central Board of Direct Taxes Chairman PC Mody said that this Budget was more about toning up the tax administration and ensuring that taxpayers get the right platform for compliance.

A FICCI member wanted to know why the government was keen on imposing more taxes on the super rich with incomes over ₹2 crore when nothing is being done to bring the “rich farmers” in the country to tax.

Mody replied that agriculture income is exempt from income tax, but at the same time noted that investments made out of exempt agriculture income are, however, subject to tax.

Published on July 09, 2019
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