Tag: advance payment

KARACHI: The State Bank of Pakistan (SBP) has amended foreign exchange manual related to advance import payments.

The central bank on July 19, 2021 issued revision in chapter 13 of foreign exchange manual.

Following is the text of amendments made to Chapter 13:

(i) Authorized Dealers (AD) / banks are allowed to effect import advance payment against irrevocable letter of credit, up to 100 per cent of the value of letter of credit, on behalf of manufacturing concerns for import of plant, machinery, spare parts and raw materials etc. for their own use only.

(ii) Authorized Dealers may also process the requests for advance payment up to USD 25,000/-, or equivalent in other currencies, per invoice on behalf of manufacturing & industrial concerns and commercial importers for import of raw material, spare parts and machinery, for ultimate use by manufacturing & industrial concern, without the requirement of L/C or Bank Guarantee from the supplier.

(iii) Further, Authorized Dealers may process the requests of the importers for advance payment up to USD 10,000/- per invoice for import of the following items:

a. Essential medicines and devices.

b. Aircraft/Ship/ Port related spare parts/components.

c. Lab equipments/instruments imported by educational institutions for their own use.

d. Newspapers, magazines, periodicals, books etc.

(iv)  Besides, in case of import of life-saving medicines & devices, Authorized Dealers may allow advance payment up to USD 50,000 or equivalent per invoice. However, before effecting advance payment against import of life-saving or essential medicines & devices, Authorized Dealers shall obtain a certificate issued by the principal of a teaching hospital in public sector or head of a Government specialized hospital confirming that the medicines/devices/instruments being imported fall under the life-saving/essential category.

(v) Authorized Dealers shall effect the advance payment against imports, as allowed under above paras, subject to compliance with the following terms and conditions:

a) The bank will take all possible measures to verify the bona fides and genuineness of the transaction while processing advance payment request and may get the credit worthiness report of the foreign supplier before allowing advance payment. In order to secure advance payment, the bank may also ask the importer to obtain bank / performance guarantee from the supplier’s bank.

b) The Authorized Dealer shall exercise due care to ensure that the amount of advance payment has not been split into multiple invoices to circumvent the regulatory requirement.

c) In case the goods against advance payment are not imported for any reason within (i) 730 days, in case of plant and machinery or (ii) 120 days, in all other cases, from the date of advance payment, the AD shall recover penalty @1 per cent per month or part thereof for the delayed period, on the outstanding amount of advance payment. For the purpose of calculation of outstanding amount in PKR, exchange rate applicable on the date of remittance of advance payment will be used. Accordingly, the period for recovery of penalty will start from the first day after the lapse of 720 days or 120 days, as the case may be, till the date of import of goods into Pakistan, as evidenced by the Goods Declaration filed by the importer in PSW.

d) In case the advance remittance is repatriated, fully or partially, due to cancellation of contract or for any other reason, the exchange gain, if any, on the amount repatriated will not be passed on to the importer and will be surrendered to SBP. For the calculation of exchange gain/loss, exchange rates applicable on the date of remittance of advance payment and the date of repatriation of funds will be used.

e) The bank will obtain an undertaking from the importer on the prescribed form (Appendix V31) that in case goods against the advance payment are not imported into Pakistan within the prescribed time, the importer will be liable to pay a penalty, to be recovered by the bank, @ 1 per cent per month or part thereof, on the outstanding amount of advance payment for the delayed period. Further, the  importer will also undertake that in case of cancellation of underlying contract, the importer will ensure immediate repatriation of advance payment and exchange gain, if any, accruing on the amount repatriated shall be surrendered to SBP.

f) In cases where the it is expected that shipment of goods against advance payments may be delayed beyond the prescribed period due to reasons beyond the control of the importer, Authorized Dealer may approach the Director, Exchange Policy Department, SBP, before the expiry of the prescribed period, for extension in time period of shipment along with tenable justification supported by documentary evidence.

g) The AD will deposit the penalty amount on monthly basis, in case of delay in import of goods against advance payment beyond the prescribed period, and exchange gain, if any, upon repatriation of advance payment, in favour of SBP through RTGS Clearing Account No. 427518. A consolidated statement regarding all such cases will be submitted by Head/Principal Offices of the Authorized Dealers to the Director, Foreign Exchange Operations Department, SBP-BSC on monthly basis as per prescribed format (Appendix V-27A). Further, in cases where the importer fails to repatriate the remitted amount, the AD shall continue to pursue the matter with the importer and report the importer to FEOD on quarterly basis.

h) If a consistent behavior as mentioned at (c) and (d) above is observed i.e. where the goods against advance payment are not imported within the prescribed time or not imported at all, Authorized Dealer may debar the concerned importer from making any future advance payments.