While the tax rates are the same the result is different since a shareholder can chose when to realize the gain. If you model dividend reinvestment vs share buy backs this taxation deferral is quite significant for the shareholder due to compounding effects. A simplistic illustration:
Tax rate on cap gains and dividends is 20%.
Inflation is zero.
Company earns 10% of its market cap yearly in profits.
Company's market cap is static over time.
Scenario A: returns profits as share buy backs.
Scenario B: returns profits as dividends on which the shareholder pays tax and reinvests the rest in company stock.
At the end of the scenario, sell all stock paying capital gains tax due (nothing to pay on scenario B since stock price has not changed.)
Even though dividends and capital gains are taxed at the same rate, scenario A beats scenario B by 10% over 10 years and 45% over 30 years.
Tax rate on cap gains and dividends is 20%.
Inflation is zero.
Company earns 10% of its market cap yearly in profits.
Company's market cap is static over time.
Scenario A: returns profits as share buy backs.
Scenario B: returns profits as dividends on which the shareholder pays tax and reinvests the rest in company stock.
At the end of the scenario, sell all stock paying capital gains tax due (nothing to pay on scenario B since stock price has not changed.)
Even though dividends and capital gains are taxed at the same rate, scenario A beats scenario B by 10% over 10 years and 45% over 30 years.