Karachi, January 30, 2024 – In a significant move aimed at facilitating trade and commerce, the State Bank of Pakistan (SBP) has granted approval for 100 percent advance payment for imports.
The decision, outlined in a notification issued on Tuesday, streamlines the import process and eliminates the need for prior approval from the SBP.
The central bank’s announcement, covered under Para 30, Chapter 13 of the Foreign Exchange Manual, has been labeled as Annexure A, and is effective immediately. This alteration in policy allows authorized dealers to process import advance payments against irrevocable letters of credit or invoices, up to the full value of the letter of credit or invoice, as the case may be.
In a detailed breakdown, Annexure A emphasizes the importance of due diligence and compliance with the Trade Based Money Laundering (TBML) framework. Among the key conditions outlined are:
(i) Commensurate Advance Remittance: Authorized Dealers are permitted to effect import advance payments, ensuring that the amount aligns with the customer’s profile, the nature and quantity of goods being imported, and the prevailing pricing trends in the international/domestic markets.
(ii) Risk Mitigation Measures: To mitigate the risk of misuse, Authorized Dealers are mandated to verify the bona fides and genuineness of beneficiaries. Importers are required to submit an undertaking on the prescribed form (Appendix V31), and collateral or guarantees may be sought to safeguard the interests of Authorized Dealers.
(iii) Reporting Requirements: Authorized Dealers must submit consolidated statements regarding cases where imports have not been effected by the due date or the amount of advance payment is repatriated before the due date. These statements, detailed in Appendices V-27A and V-27B, should be submitted to the Director, Foreign Exchange Operations Department (FEOD), SBP-BSC by the 10th day of the following month.
(iv) Penalty for Non-Compliance: In cases where goods against advance payment are not imported or funds are not repatriated within the stipulated timeframe, interim penalties will be imposed. These penalties, calculated at 0.1% per day for the delayed period, aim to ensure timely import and repatriation. The prevailing market exchange rate of each day will be used for the calculations.
(v) Adjudication and Penal Actions: FEOD, SBP-BSC, may seek additional information and file complaints against importers to the Foreign Exchange Adjudication Department (FEAD), SBP-BSC under the Foreign Exchange Regulations Act (FERA), 1947. Final penalties may be imposed on importers, and penal actions can also be initiated against Authorized Dealers, as per the powers conferred under FERA, 1947.
(vi) Monitoring and Prevention: Authorized Dealers are required to establish a monitoring mechanism to prevent the misuse of import advance payments. Appropriate actions, including filing Suspicious Transaction Reports (STRs) in cases involving TBML, debarring the importer from future advance payments, etc., may be taken against any delinquent importers.
The SBP’s decision to allow 100 percent advance import payment is expected to enhance the efficiency of trade transactions, providing businesses with greater flexibility and facilitating smoother international trade operations. The comprehensive framework outlined in Annexure A seeks to strike a balance between facilitating legitimate trade and mitigating the risk of financial impropriety in the import process.
