Taxation

Exports to Afghanistan: DTRE rules may be amended

The government is considering amending the Duty and Tax Remission for Exports rules to increase exports to Afghanistan taking into account proposals of multinational companies. In this regard, leading exporters have approached the Economic Advisory Council (EAC) with the aim to amending the DTRE scheme to facilitate exports to Afghanistan.

Tax experts told Business Recorder here on Tuesday that there is an option available under rule 298 of Custom Rules, 2001 that a direct exporter may obtain advance DTRE approval from concerned custom authorities for next 12 months based on his past export performance of 24 months. This incentive should also be provided under rule 307 of Custom rules, 2001 as well to benefit Afghanistan exporting companies, who have good track record of exports, to fully utilise this facility. The current restriction of approval on the basis of availability of advance payment or irrevocable LC in case of export to Afghanistan need to be eliminated for all export oriented sectors/FMCG sectors/well-reputed exporters to bring uniformity in DTRE rules. Realisation of export proceeds should become part of verification stage i.e. audit instead of pre-approvals stage, as it is time-consuming exercise to get approvals from customs authorities each time upon receipt of monthly advance. It is to be noted here that LC option is totally not workable due to weak foreclosure laws in Afghanistan, they suggested.

One of the leading exporters has given a proposal to increase the exports of Pakistan to Afghanistan. They have pointed out that DTRE facility which was introduced in 2001 vide SRO No. 450(1)2001 has been very helpful for different export oriented sectors; however, this has not been friendly for exports to Afghanistan.

To enhance the exports to Afghanistan a recommendation has been given for making amendment in DTRE scheme.

A top company informed the EAC that in the prevailing economic scenario lead by balance of payment crisis, it is utmost important for our country to enhance exports in order to curb declining foreign exchange reserves which is also the topmost agenda of the new Government. The company would like to highlight here that Government of Pakistan has been kind with local manufacturers by facilitating them to encourage exports through various incentives such as Duty draw back, Duty & Tax remission for exports (DTRE) and Export processing Zones.

Based on the data published by State Bank of Pakistan, Pakistan’s total exports to Afghanistan amount to US$ 1.1billion in FY 17 which has declined from US$ 1.7billion in FY 15. The decrease in bilateral trade is mainly attributable to disturbing political ties, imposition of customs duties, stringent controls over trade with Afghanistan and increasing cost of doing business in Pakistan.

DTRE facility was introduced vide SRO 450(I)/2001 dated 18 June 2001 by making addition of Chapter VIII in Custom Rules, 2001. This facility has been helpful for different export oriented sectors since its inception, however, it has not been friendly for exports to Afghanistan due to some stringent provisions.

It has been highlighted some barriers in exploiting the full potential of the scheme, which are applicable on exports to Afghanistan: As per rule 307 of Custom Rules, 2001, in case of exports to Afghanistan, benefit of DTRE facility is conditional on advance payment or irrevocable letter of credit (i.e). We would like to reproduce below the relevant extract of the said rule for your reference:

“In case of exports to Afghanistan and through Afghanistan to Central Asian Republics by land routes, the facility of this, sub-chapter shall be admissible only against established irrevocable letters of credit (LG) or receipt of advance payment in convertible foreign currency from the country of import.” Owing to the weak foreclosure laws in Afghanistan it is very expensive for importers in Afghanistan to provide irrevocable LC, as it requires 100 percent cash margin to be kept at the bank. Further, importers in Afghanistan are also reluctant to provide advance stretching over a month for their imports, which becomes a mandatory requirement because of the operational inefficiencies inherent in the DTRE scheme. Approvals from Customs authorities, which are required on monthly basis after receipt of advance/LC from Afghanistan takes almost 10-15 days due to lack of automation resulting in delay in production and timely exports, company added.