KPR Mill first company to withdraw share buyback after Budget imposed 20% tax

Textile manufacturer KPR Mill on Thursday became the first company to withdraw its Rs 263.31-crore buyback proposal after the government last week imposed an additional tax of 20 per cent in case of repurchase of shares by Indian listed companies.

"We have today filed with Sebi our communication conveying that the increase in the amount of buyback obligation due to the tax proposal in the Finance Bill 2019 was neither contemplated nor prevailing at the time of the consideration and the approvals of the board and shareholders," the company said in a press release.

KPR Mill on April 30, 2019 had announced plans to buy back 37,50,784 equity shares, representing 5.17 per cent of the total number of equity shares in the paid-up share capital of the company, at a price of Rs 702 apeice for a consideration not exceeding Rs 263.31 crore.

“We are not permitted to meet the buyback obligations beyond the amount approved by the Board of Directors and Shareholders of the Company and the same can also be effected only with the borrowed funds, which is prohibited by law. In the above circumstance, we are unable to file the 'Letter of Offer ' and go forward with the proposal, which has been intimated to Sebi,” KPR Mill said today.

With a view to discouraging the practice of avoiding dividend distribution tax (DDT) through buyback of shares by listed companies, Union Finance Minister Nirmala Sitharaman on Friday proposed an additional tax of 20 per cent in case of buyback of shares by listed companies.

“A listed company is now required to pay tax on buyback under Section 115QA at 20 per cent plus applicable surcharge and cess. The effect of this provision is that a listed company, whose buyback is still open, would be taxed at 20 per cent plus surcharge and cess on the amount of consideration paid less the issue price of such shares,” Ashok Shah, Partner at NA Shah Associates had earlier said.