SEBI DOESN’T WANT PETER TO PAY PAUL’S TAX IN BUYBACKS
Calling the current taxation rules problematic with respect to buyback of shares by companies, SEBI said it is working with the finance ministry to address the issue. Right now Peter pays for Paul’s tax. So that is not a very good idea,” said SEBI chief Madhabi Puri Buch.
Currently, buybacks of shares are allowed under two routes: tender route and open market route. In the first instance, the company invites shareholders to sell the shares to it at a fixed price for a fixed period of time when the tender is open. In this case, not all shareholders may want to sell their holdings back to the company.
However, present rules mandate that the company that offers to buy back its shares shoulders the tax liability which eats into the value of shareholders choosing not to tender the shares. Essentially, shareholders cough up taxes for not participating in a transaction. SEBI has proposed to phase out the stock exchange route for buybacks.
The timeline for completion of buyback has been now reduced by 18 days. The regulator has proposed that this period will be reduced to 66 days in 2023 and further to 22 working days in 2024. The route will be completely extinguished by 2025. Companies have to now use 75 percent of the proceeds of the buyback undertaken through the stock exchange route from the existing minimum of 50 percent.
Buybacks will be undertaken through a separate window on stock exchanges till the time they are permitted through the exchanges, the regulator said.
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