MERGER OF TAX EXEMPTION REGIMES

For Temporary Importation

Presented by:
Zubair Ahmed
Import Officer
PPCIL
Introduction: Tax Relief Regimes, Rationale, Risk Areas, Preference

Core Components of effective tax relief scheme

Possible Scenarios for Merger

Comparison of existing tax exemption regimes, Evaluation of Proposals

Merging EOU & Warehousing Rules Salient Features of proposed rules

Existing Issues at Implementation Level

Proposed Measures 2
 Tax Relief Regimes

Grant duty/tax relief on goods

Which are imported or procured locally
For Exportation

3
 Rationale Behind Duty/Tax Relief: To promote
exports by reducing cost of production

*Unnecessary cost of
*Reduces cost of collection collection and then repayment
and then repayment Schemes to Reduce Cost of Production
*Cash-flow advantage for *Lesser risk to Government
industry revenue realized & refund
4 process in control
 Risk Area: Revenue loss - diversion of
duty/tax free goods into the domestic market
Right Customs Control Regime
(i.e. legal and administrative environment)
to ensure that any claim for duty/tax relief is legitimate and can be audited

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 Decision : Which Scheme and
Customs Control Regime to Prefer?
Socio-Economic Environment & capacity of customs administration

Drawback -better
Exemption-based
option for
schemes -
occasional
administratively
exporters -doesnt
complex suitable
have the same
for manufacturers
administrative
regularly exporting
overhead as an
significant quantum
exemption-based
of production
scheme

Pakistan: both forms of duty/tax relief options available i.e. 1. exemption-based schemes and
6 2.drawback/refund-based schemes
 Core Components of an Effective
Duty/Tax Relief Scheme
Pre-Authorization or Licensing
Re-Exportation
Cross-reference: Identification of duty/tax free goods and Exported
Goods
Specification of the use to which the goods may be put
Important because temporary importation procedure allows the goods to
circulate quite freely
Rate of Yield/ I.O Ratio
7
Security for Duties and Taxes
 Core Components of an Effective
Duty/Tax Relief Scheme

Time limit for re-exportation

Should be consistent with the intended use of the goods and risk to revenue
Customs Controls
Periodic Returns/ Documentation
Audit & Monitoring
To verify the percentage of total production exported against that sold in the
domestic market to ensure duty/tax relief is legitimate
Document Retention
8
 Activities eligible for Duty/Tax Relief

Temporary admission for re-exportation in same state [DTRE]

Temporary admission for inward processing [DTRE, SRO 492]

Manufacturing under bond [Manufacturing Bonds & EOUs]

Customs Warehousing

Export Processing Zones

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 Tax RELIEF Regimes
(To boost exports by reducing cost of production)

I. Chapter XV of SRO 450(I)/2001 dated 18.06.2001

(Warehousing Rules)
II. Sub Chapter 7 of Chapter XII of SRO 450(I)/2001 dated
18.06.2001 (DTRE Rules)
III. SRO 327(I)/2008 dated 29.03.2008 (Export Oriented Units
Rules).
IV. SRO 492(I)/2009 dated 13.06.2009.
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 Tax Relief Regimes
Comparative Share: 2014-15
Rs. In Million

11
 Customs Control Regimes
Manufacturing Bonds & EOUs (Manufacturing Under Bond)
Concept of Face-Value, Items, Analysis Certificate
Export viz-a-viz Annual Production - Considered
DTRE : (Inward Processing goods circulate freely)
Concept of fixed quantity of Input and Output Goods on the basis of I/O
ratio, Samples
Export viz-a-viz Annual Production Not Considered. Input Goods to be
exported in full.
SRO 492 : (Inward Processing goods circulate freely)
Identifiable goods
No Regulatory Collectorate, No Face-Value, No I/O ratios determined
Export viz-a-viz Annual Production Not Considered. Input Goods to be
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 Scenar
io 1 Possible Scenarios

One Scheme for all Export Based Units

Question: DTRE mode or Bonds/EOU mode?
Question: Export Target viz-a-viz Annual Production
to be considered or not?
Unjustified to give same treatment to units with 10%
Vs 90% export!
13
 Scenar
io 2 Possible Scenarios

Two Schemes by setting export benchmark: may be

70%
Bonds/EOU mode (Face-Value) - Exports 70% (or
more) of annual production
DTRE mode (Fixed Inputs/Outputs) - Exports less
than 70% of annual Production
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 Possible Scenarios

Letting SRO 492 continue owing to huge quantum

of GDs filed
Most popular and widely used scheme - GDs filing
61% share
33,842 GDs filed in 2014-15

15
COMPARISON OF EXISTING TAX
RELIEF REGIMES

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 Existing Tax Relief Schemes
Export Oriented
Feature Manufacturing Bonds DTRE SRO 492
Units

Regulatory
Yes Yes Yes No
Collectorate

Export Target Vis--

Vis Annual Yes (60%) Yes (80%/60%) No No
Production

Control Regime Face Value Face Value Fixed I/O Unregulated

Mandatory Mandatory DTRE Approval

Licensing Not required
(Premises) (Premises) (Person)

3 years ( in practice annual 2 years ( in practice Approval for

Validity N/A
renewal) annual renewal) every DTRE
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 Existing Tax Relief Schemes
Export Oriented
Feature Manufacturing Bonds DTRE SRO 492
Units

Manufacturer-
cum-exporter as
Manufacturer-cum- Manufacturer-cum- Manufacturer-cum-
Eligibility for users well as
exporter exporter exporter
commercial
exporter
IB+PDC or BG or
Security prescribed Insurance Policy deleted Corporate
for Licensing / DTRE vide SRO 202(I)/2014 Insurance Policy Guarantee as per N.A
Approval dated 18.03.2014 category of
applicant
Security prescribed Indemnity Bond + BG or Pay Order or
Indemnity Bond + PDC Nil
for import stage PDC IB+PDC
I/O Ratio Determined Determined Determined Not determined

Role of IOCO / EDB Optional 18 Optional Mandatory Not applicable

 Existing Tax Relief Schemes

Feature Manufacturing Bonds Export Oriented Units DTRE SRO 492

IOCO/EDB's
Analysis Certificate Mandatory Mandatory recommendation in lieu Not Required
of analysis certificate

Territorial. If more than one

Territorial (Where manufacturing premises, then Territorial (Where
Jurisdiction manufacturing unit / where the applicant's sales manufacturing unit / Not specified
factory is located) tax registered address is factory is located)
located
Zero-rated local
Not Available Available Available Not Available
purchases
Acquisition of duty
Permissible Permissible Permissible Permissible
paid inputs

DDB facility in case of Available with 20%

Available Available Available
use of duty paid inputs capping
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 Existing Tax Relief Schemes

Feature Manufacturing Bonds Export Oriented Units DTRE SRO 492

Plant, machinery,
Raw materials, accessories,
equipment and apparatus,
sub components, Raw materials Only such goods as
including capital goods to be
components, sub-assemblies, including trims and are capable of
used solely within the limits
assemblies and includes accessories & identification at the
Goods importable/ of an Export Oriented Unit
unrecorded media for services, electricity time of re-
Input goods and Raw materials,
development of software and and gas, furnace or exportation and for
accessories, sub-components,
recorded software used as diesel oil for the operations
components, assemblies, sub-
tools for development of generation of specified except
assemblies used in the
software electricity few exceptions
manufacture of output goods

Condition of
separate warehouse Mandatory Mandatory Not required Not required
for duty free inputs

2 Years utilization period for

18 months
Utilization / 2 Years (extendable upto raw materials and 10 years 1 Year
extendable by 6
retention period further one year) retention period for (w.e.f. 01.06.2012)
20 months
machinery / spares
 Existing Tax Relief Schemes

Feature Manufacturing Bonds Export Oriented Units DTRE SRO 492

Permissible only in the Permissible only in the

Export in Same State Permissible as re-
manner of return to the same manner of return to the Not specified
condition export only
supplier same supplier

Allowed upto 20% against

Indirect export Allowed Allowed Not allowed
securities

Remission of duty /
taxes under exceptional Provided Provided Not provided Not provided
circumstances

Vendor facility Allowed Allowed Disallowed Impliedly Not specified

Bond to Bond Transfer,

Re-export, ex-bonding Return to supplier, sale
Other ways of disposals Return to same supplier or
in exceptional to other DTRE user, Not provided
of inputs sale to other licensee of EOU
circumstances and destruction
destruction
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 Existing Tax Relief Schemes

Feature Manufacturing Bonds Export Oriented Units DTRE SRO 492

20% on payment of duty / Permissible to

Local sale of finished 40% on payment of
taxes, or 20% for indirect other DTRE user Not specified
goods taxes
export only
Permissible on Permissible on
Local sales of Permissible on payment of
payment of duty & payment of duty & Not provided
Factory rejects duty & taxes
taxes taxes
Permissible on Permissible on
Local sales of Permissible on payment of
payment of sales payment of duty & Not provided
Wastages duty & taxes
taxes taxes
Monitoring / Release Audit and proof of Audit, NOC and proof of Post exportation Submission of
of securities export export audit proof of export

Record maintenance Prescribed Prescribed Prescribed Not specified

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Evaluation of Proposals From Trade

Exports Facilitation Rules, 2014

Apparel Export (Special) Rules,
2014

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 Critical Analysis on Proposed Schemes by Trade
Exports Facilitation Rules, 2014

Too Liberal
e.g. No need of physical verification due to WeBOC
Replacement of DTRE scheme with SRO 492
Single DTRE scheme based controls for all Export Based Unit
Unnecessary change of language & addition of new terms/ definitions
Foreign origin imported goods, Chief Executive Officer, single yield report, standard yield report
Faulty and impractical Monthly Statement Format
Useful Suggestions:
Concept of Self-Audit
Department's Audit Selection on the basis of Self
24 Audit Report
 Critical Analysis on Proposed Schemes
Apparel Export (Special) Rules, 2014

Undue role to ADRC to avoid legal action, e.g. 90% export target but in case
of violation, matter goes to ADRC instead of cancellation of license

Faulty and impractical Monthly Statement Format

Insurance policy condition present

Useful suggestion:
Electricity , natural gas, oil and lubricants may be included in the definition of input goods
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 Boosting

Merging Warehousing and EOU Rules

Rescinding SRO 327(I)/2008 dated 29.03.2008,

Replacing Chapter XV of SRO 450(I)/2001 dated 18.06.2001
with Proposed Rules Warehousing and Export
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 Benefits
SRO Reduction

Single WeBOC Module

Rectification of issues in existing rules and procedures

Introduction of more facilitatory measures

Self Audit
Duty/tax free import of capital goods
Reduction is retention period for technology transfer etc
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 Existing Schemes Proposed Scheme
Feature
Warehousing Export Oriented Units Warehousing and Export

Import of Duty Free

Not Allowed Allowed Allowed
Plant & Machinery

Plant & Machinery

N/A 10 Years 5 Years
Retention Period

Zero-rated local
Not Available Available Available
purchases

Export Target 60% 28

80% 70%
 Existing Schemes Proposed Scheme
Feature
Warehousing Export Oriented Units Warehousing and Export

Insurance Policy deleted vide

Security prescribed for Insurance Policy Insurance Policy Not
SRO 202(I)/2014 dated
Licensing Required Required
18.03.2014

Does not include Widened to include

Output Goods
Not Provided factory rejects & Factory rejects and
Definition
wastages wastages

Does not include Electricity, gas and fuel

Does not include electricity, gas
Input Goods Definition electricity, gas and fuel for generation of
and fuel for generation
for generation electricity included
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 Existing Schemes Proposed Scheme
Feature
Warehousing Export Oriented Units Warehousing and Export

Indirect Export
No Limit 20% 30%
Allowance

Local Sales Allowance 40% 20% 30%

Exclusive Use of
Not Provided Categorically Provided Provided
Premises

Permissible only in the

Export in Same state Permissible as re-export
Permissible as re-export only manner of return to the
condition only
same supplier
 Existing Schemes Proposed Scheme
Feature
Warehousing Export Oriented Units Warehousing and Export

Bond to Bond Transfer,

Bond to Bond Transfer, Re-
Return to same supplier or Re-export, ex-bonding in
Other ways of disposals export, ex-bonding in
sale to other licensee of exceptional
of inputs exceptional circumstances and
EOU circumstances and
destruction
destruction
Remission of duty / taxes
under exceptional Provided Provided Provided
circumstances

Vendor facility Permissible Permissible Permissible

Permissible for leftover

Permissible for leftover stock stock in exceptional
Local sale of raw Permissible to other
in exceptional circumstances circumstances and
materials licensee only
and subject to prior permission subject to prior
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permission
 Existing Schemes Proposed Scheme
Feature
Warehousing Export Oriented Units Warehousing and Export

Local sales of Permissible on payment of Permissible on payment Permissible on payment of

Wastages taxes only of duty & taxes duty & taxes

Self Audit Not Provided Not Provided Provided

NOC from Regulatory

Monitoring / Release Annual Audit and proof of Mandatory Self Audit and
Collectorate, Annual
of securities export proof of export
Audit and proof of export

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 Key Points

On Facilitation Side:
Duty Free import of Plant & Machinery
Reduction of Retention Period for plant & machinery
Complete Zero-rating including utilities allowed
Indirect Export & Local Sales 30%
Self-Audit

33
 Key Points

On Control Side:
On-line Passbook Ledger and WeBOC Module
Improvisation of Monthly Returns Format
Standardized Audit Report Format
Rectification of input/output goods definition
Exclusive use of premises

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 PROPOSED MEASURES

Marketing and Promotion Media, Associations

Seeking explanation/justification at the time of refund/rebate filing - why not
availing tax relief regime suitable for them

Improvisation of monthly returns format, Standardized Industry-wise

Audit Reports Format

On-line ledger in line with Passbook practice in India and Bangladesh,

On-line access to documentation, Periodic Ledgers
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 Proposed
Existing Schemes
Feature TMA Version
Scheme
Export Oriented Warehousing and
Warehousing
Units Export
Import of Plant,
Import of Duty machinery,
Free Plant & equipment and
Not Allowed Allowed Allowed
Machinery apparatus,

THANKS
including capital
goods
Retention Period of
Plant & Plant, machinery,
Machinery equipment and
N/A 10 Years 5 Years
Retention Period apparatus,
including capital
goods

Retention period of
Spare Parts N/A 10 Years 1 Year
(Capital goods) etc 36
 Existing Schemes
Feature
Warehousing Export Oriented Units Warehousing and Export
Control Regime for
No Face Value.
Plant, machinery,
Separate Post dated
equipment and Face Value Face Value
cheque for each
apparatus, including
consignment
capital goods
Territorial. If more than Territorial. If more than one
one manufacturing manufacturing premises,
Territorial (Where manufacturing premises, then where the then where the applicant's
Jurisdiction
unit / factory is located) applicant's sales tax sales tax registered address
registered address is is located
located

Duty Draw back allowed

Duty Draw back after deducting the value of
allowed after imported raw material
deducting the value of which are specifically
Duty Draw Back Allowed
imported raw material mentioned in first column
from FOB Value of of duty draw back SRO
37 Exported Goods. from FOB Value of
Exported Goods.
 Proposed
Existing Schemes TMA VIEW
Scheme
Feature Warehousing and
Export Oriented Warehousing and
Warehousing Export
Units Export

Wastages
Permissible on established by
Permissible on
Local Sales of Permissible on payment payment of duty & IOCO are Freely
payment of duty &
Wastages of taxes only taxes Saleable as it is
taxes
input cost of finish
Product

38