The Federal Board of Revenue (FBR) has clarified the legal framework governing the drawback mechanism on exported goods under Sections 35 to 41 of the Customs Act, 1969, as updated for tax year 2026.
The drawback facility is a key export incentive that allows exporters to recover a portion of customs duties paid on imported goods that are subsequently exported.
This article explains the drawback mechanism in a simple, step-by-step manner, highlighting conditions, limitations, and legal safeguards.
🔍 What is Drawback under the Customs Act?
A drawback refers to the repayment of customs duties paid on imported goods when those goods—or goods manufactured from them—are exported outside Pakistan.
📌 Section 35 – Drawback on Export of Imported Goods
Under Section 35, when imported goods (on which customs duty has been paid) are exported:
✔️ Amount of Drawback
• Seven-eighths (7/8) of the customs duty paid on import is refundable as drawback.
✔️ Mandatory Conditions
The drawback is allowed only if:
1. Identification: Goods must be identified as the same imported goods to the satisfaction of an officer not below the rank of Assistant Collector of Customs.
2. Time Limit: Goods must be entered for export within two years of import.
o The Collector may extend the period for sufficient cause, but not beyond three years.
📘 Explanation: Goods are deemed entered for export on the date the Goods Declaration (GD) is delivered under Section 131.
🛠 Section 36 – Goods Used Before Export
If imported goods are used between importation and export, drawback is still possible—but:
• It will be governed strictly by prescribed rules, not Section 35 directly.
🏭 Section 37 – Drawback on Inputs Used in Exported Manufactured Goods
This section covers manufacturing exports:
• If imported goods are used as raw material or inputs in manufacturing exported goods, the Board (FBR) may allow drawback.
• The allowance is issued through official Gazette notifications.
• Conditions and rates are defined under specific rules.
👉 This provision supports value-added exports and industrial growth.
🚫 Section 38 – Identifiable Goods & Export Restrictions
(1) Identifiability of Goods
• FBR may declare certain goods as not easily identifiable, making them ineligible for drawback.
(2) Export Restrictions
• The Federal Government may prohibit drawback on exports:
o To specific foreign ports, or
o For certain goods or classes of goods.
❌ Section 39 – When Drawback Is Not Allowed
No drawback shall be granted if:
• Goods required to appear on the export manifest are missing.
• The drawback claim for a single shipment is Rs100 or less.
• The claim is not made and established at the time of export.
⏳ Section 40 – Time of Payment
• Drawback payment is made only after:
o The vessel has sailed, or
o The conveyance has left Pakistan.
This ensures exports are actually completed before refunds are issued.
📝 Section 41 – Declaration by Claimant
Every exporter or authorized agent must submit a formal declaration confirming:
• Goods have been actually exported.
• Goods have not been relanded in Pakistan.
• The claimant was and remains entitled to the drawback.
False declarations may trigger penalties under customs law.
📊 Why the Drawback Mechanism Matters
• ✅ Encourages exports
• ✅ Reduces cost of imported inputs
• ✅ Supports manufacturers and traders
• ✅ Improves competitiveness in global markets
🔎 Key Takeaway
The drawback mechanism under the Customs Act, 1969 (updated for 2026) is a structured and conditional incentive aimed at promoting exports while ensuring transparency and compliance. Exporters must strictly follow time limits, documentation requirements, and declaration rules to benefit from this facility.
Disclaimer: This article is intended for general informational and educational purposes only and does not constitute legal, tax, or professional advice. While efforts have been made to ensure accuracy in line with the Customs Act, 1969 (updated for 2026), laws, rules, and interpretations may change. Readers are advised to consult the relevant statutory provisions, official notifications, or a qualified customs or tax professional before making any decision or taking action based on this information.