Claiming Duty Drawbacks

SMEDA Business Guide Series

Procedure for Claiming Duty Drawbacks

Revised on November 2, 2005

Prepared By: Policy & Planning

Small and Medium Enterprise Development Authority

Ministry of Industries, Production & Special Initiatives Government of Pakistan

www.smeda.org.pk

HEAD OFFICELAHORE

6th Floor, L.D.A Plaza, Egerton RoadLahore-54792

Tel: 111-111-456Fax: (042) 6304926

[email protected]

REGIONAL OFFICESINDH

5th Floor, Bahria Complex 2, M.T.Khan Road,

KarachiTel: (021) 111-111-456

Fax: (021) [email protected]

REGIONAL OFFICENWFP

Ground floorState Life BuildingThe Mall, Peshawar

Tel: (091) 9213046-47Fax: (091) 286908

[email protected]

REGIONAL OFFICEBALOCHISTAN

Bungalow No. 15-AChaman Housing Scheme

Airport Road, Quetta.Tel: (081) 2831702/2831623

Fax: (081) [email protected]

Policy Planning & Strategy

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Table of Contents

1. Introduction to SMEDA 03

2. Role of Policy Planning & Strategy Department 03

3. Introduction of Duty Drawback 04

4. What is Duty Drawback 04

5. Regulating Authority 04

6. Executing Authority 05

7. Time Period for Lodging Duty Drawback Claim 06

8. Rebate Calculation 06

9. Process for Claiming Duty Drawbacks 07

10. Process Flow Chart for exporters 09

11. Check List 10

12. Addresses of Customs Rebate & Refund Sections 12

13. Annex I to Annex XIII 13 – 26


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INTRODUCTION TO SMEDA

The Small and Medium Enterprise Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME development strategy.

Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved overhauling of the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development.

After successfully qualifying in the first phase of sector development SMEDA reorganised its operations in January 2001 with the task of SME development at a broader scale and enhanced outreach in terms of SMEDA’s areas of operation. Currently, SMEDA along with sectoral focus offers a range of services to SMEs including over the counter support systems, exclusive business development facilities, training and development and information dissemination through a wide range of publications. SMEDA’s activities can now be classified into the three following broad areas:

1. Creating a Conducive Environment; includes collaboration with policy makers to devise facilitating mechanisms for SMEs by removing regulatory impediments across numerous policy areas

2. Cluster/Sector Development; comprises formulation and implementation of projects for SME clusters/sectors in collaboration with industry/trade associations and chambers

3. Enhancing Access to Business Development Services; development and provision of services to meet the business management, strategic and operational requirements of SMEs

SMEDA has so far successfully formulated strategies for sectors, including fruits and vegetables, marble and granite, gems and jewellery, marine fisheries, leather and footwear, textiles, surgical instruments, transport and dairy. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation.

Along with the sectoral focus a broad spectrum of services are now being offered to the SMEs by SMEDA, which are driven by factors like enhanced interaction amongst the stakeholders, need based sectoral research, over the counter support systems, exclusive business development facilities, training and development for SMEs and information dissemination through wide range of publications.


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ROLE OF POLICY & PLANNING DEPARTMENT

The Policy & Planning department of SMEDA is the hub of policy and regulatory research that feeds national, provincial and local government institutions, SME associations, industrial clusters and individual entrepreneurs with the ultimate objective of creating a conducive business environment. It has a mandate to identify and where suitable initiate strategic projects. The Policy & Planning of SMEDA plays a key role in providing an overall policy direction to SMEDA, under which SMEDA provides support to SMEs. The P& P provides guidance based on field realities pertaining to SMEs in Pakistan and other parts of the world. Information resource center of SMEDA is an integral part of Policy & Planning department while development of Regulatory Procedures is a part of an overall information dissemination function of the department. In order to facilitate SMEs at the micro level Policy & Planning department has developed user-friendly systems which provide them detail description of the Laws and Regulations including the process and steps required for compliance.


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Introduction to Duty DrawbackThis document has been developed to assist and facilitate exporters to claim duty drawbacks. Exporters are considered as major foreign exchange earner of Pakistan economy. Exporters at times require imported raw materials or components for producing goods to be exported In order to compensate for import duties or taxes levied at the time of import, the government has been trying to provide incentives to exporters by introducing various schemes such as a) Duty Drawbacks boost b) Temporary Importation Scheme, c) Manufacturing in Bonds rule d). Common Bonded Warehouses exports, exporters are given various incentives.

What is Duty Drawback?Duty Drawback is the most commonly availed incentive by exporters. It is the amount reimbursed by the government to exporters as compensation for Customs Duty collected at the time of import. For the purpose, CBR sets aside a certain percentage of customs duty collected on imported raw material for incentivitising export production.

Regulating AuthorityCentral Board of Revenue (CBR) allows and regulates duty drawback claims through four basic SROs1 namely “Repayment of Customs Duty on Importation of Raw Material Used in Production or Manufacture of Goods Being Exported Subject to Certain Conditions” SRO Notification No:

1. 784(I)/2005

2. 785(I)/2005

3. 786(I)/2005

4. 787(I)/2005

Adjustments and changes that take place are monitored and intimated through issuance of new SROs by the Central Board of Revenue. These changes in duty drawback rates may be unit specific or commodity specific. The exporter must inquire and confirm the relevant SRO on the basis of which one wishes to claim duty drawback or custom rebate. These SROs are easily available in handbook of “Export Rebate 2004-2005” and can be accessed at www.cbr.gov.pk.

1 These SROs are issued according to Section 21(c) of the Customs Act. 1969


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Executing AuthorityCustoms Rebate Section in Customs Collectorate deals with duty drawback claims. The generic organizational structure of rebate section at any custom collectorate is as follows. However, the organizational structure may vary slightly at various collectorates.

It is very important for an exporter for claiming duty drawback, to clearly mention on the export bills/shipping bills that this export is covered under rebate claim along with relevant SRO number. Non compliance of this requirement may complicate the rebate claim process for the exporter. In fact, before the shipment, exporter files the shipping bills with the customs authorityand Inspector (Exports) examines the consignment and gives his examination report at the back of shipping bills and verifies the qualifications of goods for claiming duty drawbacks. It is therefore, imperative to comply with above requirement for the ease of inspection and subsequent processing of drawback claims.

Collector

Additional Collector

Deputy Collector/Assistant Collector

Superintendent

Deputy Superintendent

Inspector

Clerk


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Time Period for Lodging Duty Drawback ClaimAn exporter can file a duty drawback claim after complying with all custom formalities and the shipment of export consignment within the following twotime periods.

1. Within 210 days from the date of shipment. 2. Or within 180 days after realization of export proceeds.

Rebate CalculationRebate is always calculated on the basis of F.O.B (Free on Board) value. The cost of insurance and freight is not considered while calculating rebate amount. The calculation of rebate is as follows:

Step 1F.O.B = (Amount realized in Foreign Exchange) X (Exchange Rate) _ (Subtract insurance or freight cost if any)

Step 2Amount of Rebate = (F. O. B Value) X (Percentage to be refunded as set by CBR)

Example: Assumption (Basis for Calculation)The following example illustrates how to calculate the rebate based on certain assumptions as mentioned.

Assumptions

Invoice Value US$ 27,895.60Amount realized in foreign exchange US$ 27,823.60Exchange Rate PKR. 59.85Freight PKR. 48,400.00Insurance PKR. 16,876.00Value of Dyed Garments US$ 25,395.60Value of White Garments US$ 2,500.00

Calculations

Rate of rebate for Dyed Garments 4.47%Rate of rebate for White Garments 2.21%Applicable SRO No. & Date 412(I)/2001 dated 18-06-2001 and 823(I)/2001 dated 1-12-2001

FOB Value Calculation

F.O.B = (Amount realized in F. E.) X (Exchange Rate) – (Freight) – (Insurance)F.O.B = (27,823.60 X 59.85 = Rs.1, 665,242) – (48,400) – (16,876)F.O.B = PKR. 1,599,966

Rebate Calculation

Total F.O.B Value/Total Invoice Value X Value of itemF.O.B Value of Dyed Garments = 1,599,966/27,895.60 X 25,395.60 = PKR. 1,456,577F.O.B Value of White Garments = 1,599,966/27,895.60Dyed Garments = PKR. 1,456,577 @4.47% = PKR. 65,108White Garments = PKR. 143, 389 @ 2.21%. = PKR. 3, 168Total rebate amount = PKR. 68, 276


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Process for Claiming Duty DrawbacksStep 1

Exporter files the claim for export rebate and submits the file to the customs rebate section along with the following documents

1. Application For Rebate. (Annex I)2. Rebate Payment Order ( Appendix- A ), Pre Receipted. (Annex II)3. Calculation Sheet for Duty Drawback. (Annex III)4. Bank Credit Advice ( B.C.A ) (Original) (Annex IV)5. Bill of Lading (First Original). (Annex V)6. Railway Receipt (Attested by the Railways). (Annex VI)7. Customs Signed Invoice with Two Photocopies. (Annex VII)8. Packing List. (Annex VIII)9. Exchange Rate Certificate (Annex IX)10.Quadruplicate Copy of Shipping Bill. (Original) (Annex X)11.Photo Copy of Duplicate Form “E”. (Annex XI)12. Laboratory Test Report. (if required) (XII)13. Photocopy of SRO. (relevant to exporter’s product)14. Copy of Cross Border Certificate (In case of export through land route).

(Annex XIII)15.Sales Tax Return of clearing agent of previous month (if claim launched

through clearing agent) Step 2

The rebate claiming process begins when an exporter files the case with Custom Rebate Section along with requisite documents.

The dealing clerk receives the file after checking the required documents. The clerk enters the file in daily register and allots a file number to it. After initial marking the clerk makes an entry of that case/file number in

the computer. The same day the file is sent to the inspector.Step 3

The actual processing of rebate claim begins when the case is sent to inspector.

There are normally 2-3 inspectors in the Rebate Section. Work is divided among them commodity wise.

The concerned inspector who carries out the scrutiny of the case receives the file and checks all the relevant facts and figures on each attached document and calculates the rebate to be sanctioned. The processing of claim is the responsibility of the inspector.

If satisfied, inspector recommends the file to the Deputy Superintendent (D.S).

Step 4

The further scrutiny of the case is done at the Deputy Superintendent Office in the following manner:

D.S once again scrutinizes the whole application. If acceptable, D.S forwards the case to Superintendent.


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Step 5

This is the first stage where the sanctioning of the claim begins.

The Superintendent once again goes through the whole case thoroughly. If the claim is upto Rs.25,000, it is sanctioned by the superintendent. The

claims above this limit are approved by the Custom Authority as per following table.

Above Rs.25,000 to Rs. 200,000/300,000

Assistant Collector or Deputy Collector.

Above Rs.200,000/300,000 to Rs.1,000,000

Additional Collector.

Above Rs.1,000,000 Collector.

Step 6

Once the claim has been approved, the backward journey of rebate claim begins.

The file comes back through the reverse channel to the dealing clerk. The Clerk makes an entry of sanctioned claim in the register and computer The case is then sent to Chief Account Officer Custom House who checks

the name and relevant information and issues the cheque.

The claim processing may differ slightly from station to station.


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Filing of Rebate ClaimThe exporter files the claim along with

required documents with custom rebate section.

Receiving by Dealing ClerkThe dealing clerk receives file and enters it into register and computer.

Scrutiny of Claim by InspectorThe inspector scrutinises the claim and calculates properly the amount of rebate to be given to the exporter

Scrutiny of Claim by Deputy Superintendent (D.S)

The inspector recommends the file to D.S who further checks it and forwards it to the Superintendent.

Sanctioning of Claim by SuperintendentThe superintendent goes through the file and sanctions the claim if it is upto Rs. 25, 000.

Issuance of Rebate ChequeAfter sanction, the file comes back to clerk who makes an entry in the register & computer. The file is then sent to Chief Account Officer Custom House who issues the cheque.

Documents Required1. Application for Export

Rebate.2. Calculation Sheet.3. Rebate Payment Order.4. Bank Credit Advice

(original).5. Bill of lading (Original)6. Railway Receipt No.

Attested.7. Customs signed Invoice

with 2 Photocopies.8. Packing List.9. Exchange Rate Certificate.10. Quadruplicate Copy of

Shipping Bill. (Original)11. Photocopy of Duplicate

Form E.12. Laboratory Test Report.13. Photocopy of SRO.14. Copy of Cross Border

Certificate (in case of export through land route)

15. Sales Tax Return of clearing agent of previous month (if claim launched through clearing agent)

Sanctioning of Claim by Assistant Collector/Deputy Collector

The Claim above Rs. 25, 000 and upto Rs 200,000/300, 000 is sanctioned by

Assistant Collector/Deputy Collector

Sanctioning of Claim by Additional Collector

The Claim above Rs 200,000/300, 000 and upto Rs. 1000,000is sanctioned by

Additional Collector.

Sanctioning of Claim CollectorCollector approves the Claim above Rs

1000,000.

Process Flow Chart


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Check List for Exporter

Document YES/NO/Not Applicable

1. Application for Rebate (Properly Filled)

2. Rebate Payment Order (Appendix –A) Pre Receipted (Properly Filled)

3. Calculation Sheet for Duty Drawback

4. Bank Credit Advice. (Original)

5. Bill Of Lading (First Original)

6. Railway Receipt (Certified and stamped by Pakistan Railways)

7. Two Photocopies of Invoice (Attested and Stamped by Inspector and Deputy Superintendent, Customs)

8. Packing List

9. Exchange Rate Certificate (It should be of the same date as that of filing of shipping bill)

10. Quadruplicate Copy of Shipping Bill (Exact SRO number and “Under Rebate Claim” should be mentioned)

11. Photocopy of Duplicate Form E

12. Laboratory Test Report (if required)

13. Photo Copy of SRO (Relevant)

14. Cross Border certificate (for export through land route)

15. Sales Tax Return of clearing agent of previous month (in case of claim launched through a clearing agent)


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Addresses of Customs Rebate & Refund Sections

Member CustomsCentral Board of RevenueCBR HouseConstitution AvenueIslamabad

Refund & Rebate Branch Moghalpura Dry port LahoreTel: 042-9220658

Rebate Branch (A.F.U)Lahore AirportLahore

Rebate BranchCustom HouseKarachi

Rebate BranchSambrial Dry portSialkot

Rebate BranchDry port TrustFaisalabad


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Annex I


14

Annex II


15

Annex III


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Annex IV


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Annex V


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Annex VI


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Annex VII


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Annex VIII


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Annex IX

A


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Annex X

Page 1 of 2 of Annex X


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Annex X

Page 2 of 2 of Annex X


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Annex XI


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Annex XII

Page 1 of 2 of Annex XII


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Annex XII

Page 2 of 2 of Annex XII


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Annex XIII