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 OFFICE LAHORE 6th Floor, L.D.A Plaza, Egerton Road Lahore-54792 Tel: 111-111-456 Fax: (042) 6304926 helpdesk@smeda.org.pk REGIONAL OFFICE SINDH 5th Floor, Bahria Complex 2, M.T.Khan Road, Karachi Tel: (021) 111-111-456 Fax: (021) 5610572 helpdesk-khi@smeda.org.pk REGIONAL OFFICE NWFP Ground floor State Life Building The Mall, Peshawar Tel: (091) 9213046-47 Fax: (091) 286908 helpdesk-pew@smeda.org.pk REGIONAL OFFICE BALOCHISTAN Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 2831702/2831623 Fax: (081) 2831922 helpdesk-qta@smeda.org.pk

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Table of Contents
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Introduction to SMEDA Role of Policy Planning & Strategy Department Introduction of Duty Drawback What is Duty Drawback Regulating Authority Executing Authority Time Period for Lodging Duty Drawback Claim Rebate Calculation Process for Claiming Duty Drawbacks Process Flow Chart for exporters Check List Addresses of Customs Rebate & Refund Sections Annex I to Annex XIII 03 03 04 04 04 05 06 06 07 09 10 12 13 26

Policy Planning & Strategy 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 SMEDAs 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. SMEDAs 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 SMEDAs 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 Drawback

This 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 Authority
Central 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.

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

Additional Collector

Deputy Collector/Assistant Collector

Superintendent

Deputy Superintendent

Inspector

Clerk

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 authority and 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.

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Time Period for Lodging Duty Drawback Claim

An exporter can file a duty drawback claim after complying with all custom formalities and the shipment of export consignment within the following two time periods. 1. Within 210 days from the date of shipment. 2. Or within 180 days after realization of export proceeds.

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

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

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

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Process for Claiming Duty Drawbacks

Step 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 exporters 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. Assistant Collector or Deputy Collector. Additional Collector. Collector.

Above Rs.25,000 to Rs. 200,000/300,000 Above Rs.200,000/300,000 to Rs.1,000,000 Above Rs.1,000,000

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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Process Flow Chart

Filing of Rebate Claim The exporter files the claim along with required documents with custom rebate section. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Documents Required Application for Export Rebate. Calculation Sheet. Rebate Payment Order. Bank Credit Advice (original). Bill of lading (Original) Railway Receipt No. Attested. Customs signed Invoice with 2 Photocopies. Packing List. Exchange Rate Certificate. Quadruplicate Copy of Shipping Bill. (Original) Photocopy of Duplicate Form E. Laboratory Test Report. Photocopy of SRO. Copy of Cross Border Certificate (in case of export through land route) Sales Tax Return of clearing agent of previous month (if claim launched through clearing agent)

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

Scrutiny of Claim by Inspector The 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 Superintendent The superintendent goes through the file and sanctions the claim if it is upto Rs. 25, 000.

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 Collector Collector approves the Claim above Rs 1000,000.

Issuance of Rebate Cheque After 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.

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Check List for Exporter Document

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Application for Rebate (Properly Filled) Rebate Payment Order (Appendix A) Pre Receipted (Properly Filled) Calculation Shee t for Duty Drawback Bank Credit Advice. (Original) Bill Of Lading (First Original) Railway Receipt (Certified and stamped by Pakistan Railways) Two Pho tocopies of Invoice (Attested and Stamped by Inspector and Deputy Superintende nt, Cus toms) Packing List Excha nge Rate Cer tificate (It should be of the same date as that of filing of shipping bill) Quadruplicate Copy of Shipping Bill (Exact SRO number and Under Rebate Claim sho uld be mentioned) Photocopy of Duplicate Form E Laboratory Tes t Report (if required) Photo Copy of SRO (Relevant) Cross Border certificate (for export thr ough land route) Sales Tax Re tur n of clearing agent of previous month (i n case of claim launched through a clearing agent)

YES/NO/Not Applicable

11. 12. 13. 14. 15.

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Addresses of Customs Rebate & Refund Sections

Member Customs Central Board of Revenue CBR House Constitution Avenue Islamabad Refund & Rebate Branch Moghalpura Dry port Lahore Tel: 042-9220658 Rebate Branch (A.F.U) Lahore Airport Lahore Rebate Branch Custom House Karachi Rebate Branch Sambrial Dry port Sialkot Rebate Branch Dry port Trust Faisalabad

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Annex I

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Annex II

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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

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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

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