June 15, 2020 (MLN): In a recent budget FY2020-21, there is no new incentive announced for Textile, though this sector being an export-oriented, faces a double whammy of COVID-19 on both demand and supply side.
Moreover, the withdrawal of zero-rated status has added to the woes of Textile manufactures and would likely hit the textile exports, thanks to the federal government.
However, the government has supported the textile industry by exempting 5% customs duty on imports of raw material i.e polyester for button manufacturers which will likely help smaller textile players. Not only this, but the government also reduced customs duty on the import of raw material used in the manufacturing of interlining to reduce the cost of production.
To provide relief to the organized retail sector which is integrated online with FBR through Point of Sale system, the sales tax has been reduced to 12% from 14%. As per market analysts, this decrease in sales tax can bode well for listed players like GATM and NML which have a significant retail presence.
Speaking of tax refunds, the government proposed to expedite the centralized processing system and automatic export rebates disbursement which would improve cashflows of companies, resulting in less reliance on loans to meet working capital requirements.
The subsidy of Rs 10 billion given to the LNG sector in the form of low gas and power tariff would benefit the textile players which rely on RLNG for meeting power requirements.
Thus, the budget impact on the textile sector is neutral as per market analysts. The textile industry which faces a difficult time as advance order book reduced to a few days which was usually booked for 3-6 months. More notably, new orders booked so far have largely been of PPE related fabric that are generally one-time and low margin orders. However, players with integrated textile operations and more local presence are relatively better positioned to weather the storm of this crisis, while players across the fashion fabric value are most vulnerable, as per the AKD research note.
The textile industry had high hopes from the budget FY2020-21 to address the issues facing by the country in the form of stable and long-term measures which could become a force multiplier for textile exports. The sector accounts for 67% of the total exports which makes the 12 percent share in GDP, battering with the COVID-19 crisis.
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