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Change in tax regime for exporters; Textile earnings will be impacted

§  The government has revised the tax regime for the export-based industry, transitioning from a full and final tax of 1% of turnover/sales to a normal corporate tax. This change in tax policy will have a material impact on the earnings of exporters, particularly those in the textile sector as textile exports constitute 54% of the country’s total exports of US$15.2bn in 11MFY24.

§  Exporters income will now be taxed at corporate tax rate of 29%, plus super tax of 1-10% with income over Rs150mn. In most cases, the super tax will be 10% as the majority of the listed textile companies have profits of over Rs500mn.

§  For our analysis, in the textile sector we have selected companies that have a free float market cap of more than Rs2 billion and an average daily traded value of more than Rs1 million.

§  The companies with the highest export ratios will experience the most pronounced impact. Of our chosen companies, Interloop (ILP) has the highest export-to-sales ratio of 94%. Post inclusion in the normal tax regime, the company will have a negative impact of Rs 5/share on its earnings, 35% of FY23 profits.

§  Gul Ahmed Textile Mills (GATM) has export sales of 73% and the company will have a negative impact of Rs0.85/share, which is 13% of its FY23 earnings.

§  Nishat Chunian Limited (NCL) is currently operating at a loss, based on which the company will continue to pay 1% turnover tax, which is minimum, in our view.

§  Nishat Mills export to sales ratio is 70% and based on our working, per share impact on NML would be Rs4.79, which is 14% of its EPS. Our working for Nishat Mills is adjusted for the dividend income which is taxed at 15% as full and final.

Courtesy – Topline Pakistan Research

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