FBR proposes stringent steps to prevent Export Finance Scheme misuse – Business

ISLAMABAD: The Federal Board of Revenue (FBR) has proposed drastic changes to the Export Finance Scheme (EFS) to prevent misuse of the facility and tighten tax enforcement.

At the outset, the FBR proposed withdrawing the facility for iron and steel scrap importers. The amendments were introduced through SRO204 of 2025 in the Customs Rules 2001.

The draft amendments will be finalised within seven days after getting feedback from relevant stakeholders.

Under the proposed amendment, the Engineering Development Board (EDB) approval mechanism was removed. The references to the EDB for approving engineering goods and input-output ratios have been removed after six months.

There are also changes in the security requirements of availing the facility. The manufacturing-cum-exporters having a minimum export value of $20 million or above in the last two years will have to furnish an indemnity bond and post-dated cheques (PDC).

Contrary to this, the manufacturers-cum-exporters having exports value less than $20m will have to furnish indemnity bond and PDC equivalent to the average annual duty and taxes of input goods used in exports in the last two years, and bank guarantee or revolving bank guarantee shall be furnished for any excess duty and taxes being deferred or remitted.

The users with poor compliance history (pending recoveries, contraventions, or criminal proceedings) will have their authorisation suspended immediately, pending a defence.

Moreover, non-compliance in reconciliation statements or stock audits can lead to suspension.

The regulatory collection has been increased in stock audits, utilisation tracking, and vendor verification to strengthen the monitoring mechanism further. Moreover, WeBOC/PSW systems are to be updated for real-time monitoring of imports and exports. The other measures include sampling at import/export stages for quality control.

The utilisation period of input was now set at nine months, extendable in exception cases. Similarly, vendor processing is now limited to 60 days.

FBR also proposed more stringent regulations, requiring vendors to be pre-declared and geo-tagged in the WeBOC system, and new vendors require approval from the regulatory collector.

There will be restrictions on domestic sales. The factory rejects or B-grade goods sales capped at 5pc of total production and domestic sales above this limit will be taxed as if imported. There will be higher scrutiny for wastage claims beyond prescribed limits.

FBR also proposed financial penalties for misuse of the EFS. Unauthorised removals or exceeding utilisation periods will trigger immediate encash-ment of bank guarantees/PDCs. The late recon-ciliation statements result in system restrictions on further acquisitions.

For operational improvements, the chief collector (exports and IOCO) will ensure timely processing of cases within 60 days. New entrants into EFS must submit quarterly reconciliation statements for the first three years. And regulatory collectors will monitor stock-taking and utilisation records more frequently, added the notification.

Published in Dawn, February 28th, 2025