FOREIGN EXCHANGE MANUAL
|II||Authorised dealers and money changers|
|III||Authorised rates of foreign exchange|
|IV||Forward exchange facilities|
|V||Foreign currency accounts of authorised dealers and sale of foreign currencies|
|VI||Private foreign currency accounts|
|VII||Non-resident rupee accounts of foreign bank branches and correspondents|
|VIII||Private non-resident rupee accounts|
|X||Inward and outward remittances|
|XI||Dealings in foreign currency notes and coin etc|
|XIV||Commercial remittances (other than for imports)|
|XVIII||Import and export of currency notes and coin, foreign exchange, jewellery, gold and silver|
|XIX||Loans, overdrafts and guarantees|
|XXI||Repatriation of invisible earnings of foreign exchange|
|XXII||Returns of all foreign exchange transactions|
- Foreign Exchange Regulation Act,1947 and Notifications issued thereunder.
Foreign Exchange Policy and its operations in Pakistan are formulated and regulated in accordance with the provisions of the Foreign Exchange Regulation Act, 1947. The object of this Act is to regulate, in the economic and financial interest of Pakistan, certain payments, dealings in foreign exchange, securities, import/export of currency and bullion. Under the Act, the basic regulations are issued by the Government of Pakistan and the State Bank in the form of Notifications which are published in the official Gazette. The Act, as amended up-to date, is reproduced at the end of the Manual as Appendix I. Notifications issued by the Government of Pakistan under the Act, except those issued in terms of sub-section (2) of Section 19, sub-section (2) of Section 23 and Section 23-B are reproduced as Appendix II and those issued by the State Bank are reproduced as Appendix III.
- Directions issued under the Act.
For the purpose of securing compliance with the provisions of the Act and the Notifications and any rules, orders or directions issued thereunder, the State Bank may, under sub-section (3) of Section 20 of the Act, give directions to Authorised Dealers, travel agents, carriers, stock-brokers and other persons who are authorised by the State Bank to do anything in pursuance of the Act, in regard to making of payments and carrying out other acts in the course of their business. Directions having general application are issued in the form of public notices, F.E. circulars and circular letters etc. Instructions issued by the State Bank to the Authorised Dealers, Authorised Money Changers, travel agents, carriers, etc., upto 31-12-2001, setting out the terms and conditions subject to which they may engage in transactions covered by the Act, have been incorporated in this Manual. Contents of this Manual and all instructions, directions, orders etc., issued under the Act are without prejudice to the provisions of any other law of Pakistan or any rules, notifications, orders, directions or regulations made thereunder.
Changes in the regulations are generally advised by issue of F.E. circulars. This edition of the Manual has been issued in the loose-leaf form. Amendments in the provisions of the Manual will be printed periodically by the State Bank in the form of replacement pages which will be substituted in place of the old pages. It will be in the interest of Authorised Dealers and other holders of the Manual to ensure that it is kept updated and the old pages are regularly replaced by new pages whenever issued. The Manual and its amendments will also be posted on the State Bank’s Website (www.sbp.org.pk).
- Jurisdiction of the Offices of Exchange Policy Department.
Under the Act, the State Bank is responsible for day to day administration of Foreign Exchange Policy which is exercised through its Exchange Policy Department. The Principal Office of the Department is situated at Karachi under the charge of a Director. The Department has following offices with the jurisdiction of each Office mentioned there against:
Operations Division, Exchange Policy
Department, SBP, Central Directorate, Karachi
|4||Quetta:||Quetta, Kalat, Sibi and Mekran Divisions.|
|6||Faisalabad:||Faisalabad and Sargodha Divisions.|
|8||Multan:||Multan and Dera Ghazi Khan Divisions.|
|10||Islamabad:||Federal Capital Area of Islamabad.|
|11||Peshawar:||Hazara, Kohat, Malakand and
|12||Gujranwala:||Gujranwala Division, excluding Sialkot District.|
|13||D. I. Khan:||Dera Ismail Khan Division.|
- Authorised Dealers to notify the Regulations to their Customers and to report Cases of Evasion.
Authorised Dealers are required to bring the Foreign Exchange regulations to the notice of their customers and to ensure compliance in their day to day operations. They should also report to the State Bank every case of evasion or attempt, direct or indirect, at evasion of the provisions of the Act and Notifications or any rules, orders or directions issued thereunder, immediately as it comes to their notice.
- References to the State Bank.
Authority has been delegated to the Authorised Dealers to approve certain transactions on behalf of the State Bank. In these cases, Authorised Dealers should, before approving any transactions, satisfy themselves about the bonafides of the applicant and the genuineness of the transaction by verifying the necessary documents. They should refer to the State Bank alongwith their recommendations/comments only those cases which they are not authorised to approve. While referring cases to the State Bank, they should ensure that the applications are on the prescribed forms, wherever such forms are prescribed and are supported by appropriate documentary evidence. In all these cases it will be deemed that they have satisfied themselves about the bonafides of the applicants and the correctness of the statements made by them on the application and the accompanying documents, if any.
- Submission of Returns to the State Bank.
Authorised Dealers must submit to the State Bank returns of their dealings in foreign exchange on due dates in the forms prescribed in the Manual. Specimens of all application forms and returns prescribed by the State Bank are given in Appendix V.
(i) Forms ‘M’, ‘T-1’, ‘E’ and ‘I’ will be got printed by the Head/Principal Offices of the Authorised Dealers themselves strictly according to the size, contents and format of the specimens supplied to them by the State Bank. These forms should bear an identifying prefix as per Appendix IV followed by serial numbers in six digits except in the case of form ‘E’ which will have seven digits. For example, the first number of all the forms printed by XYZ bank except form ‘E’ will be “XYZ 000001” (i.e. six digits) and so on, and in the case of form ‘E’, the serial number will be “XYZ 0000001” (i.e. seven digits) and so on. The other prescribed forms may also be got printed by the Authorised Dealers themselves. These must conform exactly in size, content and format to the respective forms prescribed by the State Bank.
(ii) As omission of any part in the printing of the forms is likely to make a material change and may weaken the position of the State Bank legally, Authorised Dealers should take utmost care in the printing of the forms. They should also keep an updated record of the forms printed and distributed to their branches, which should be kept adequately stocked to avoid any complaint on account of non-availability of the forms.
Terms having special meanings for the purposes of the Act have been defined in Sections 2 and 13 of the Act.
- i) For the purposes of Section 13 of the Act the term “persons resident outside Pakistan” covers a foreign national including foreign nationals of Indo-Pak origin as also Pakistanis holding dual nationality for the time being resident in Pakistan. A company registered in Pakistan which is controlled directly or indirectly by “persons resident outside Pakistan” is, for the purposes of Sections 13 and 18 of the Act, treated as a “person resident outside Pakistan”.
- ii) For the purposes of Section 5 of the Act the term “persons resident outside Pakistan” also includes nationals of Pakistan and persons domiciled in Pakistan, except persons holding office in the service of Pakistan, who go out of Pakistan for any purpose.
iii) In respect of purposes other than the above, a resident person, bank or firm is a person who resides in Pakistan. A non-resident is a person, bank or firm, who resides outside Pakistan. No definite rules can be laid down for determining whether a person is ordinarily resident in Pakistan but there is a presumption that a person is resident if he maintains a home in Pakistan, or resides in the country for a substantial part of each year, or pays income tax as a resident of Pakistan. On the other hand, the fact that a person gives an address in Pakistan does not necessarily mean that he should be regarded as a resident if he is in fact only a temporary visitor and is ordinarily resident outside Pakistan.
- iv) The following terms used in the Manual are described below:
- a) Rupee– ‘Rupee’ means the Pakistan Rupee unless otherwise specified.
- b) Act– ‘Act’ means the Foreign Exchange Regulation Act, 1947.
AUTHORISED DEALERS AND MONEY CHANGERS
- Authorization to deal in Foreign Exchange.
(i) In terms of the powers vested in it by section 3 (1) & 3 (2) of the Act, the State Bank may on application authorise any person to deal in foreign exchange. An authorisation may authorise dealings in all foreign currencies or may be restricted to authorising dealings in specified foreign currencies only and may authorise transactions of all descriptions in foreign currencies or may be restricted to authorising specified transactions only.
(ii) Authorisations to deal in all foreign currencies and in approved transactions of all descriptions are issued to those scheduled banks which conduct all types of banking transactions. Authorisations limited to specified transactions are issued to those Non-bank financial institutions which undertake limited banking transactions.
- Application for Authorised Dealer’s Licence.
(i) Applications for grant of Authorised Dealer’s Licence should be made by the Head Office of the bank/NBFI or the Principal Office in Pakistan in the case of a foreign bank, to the Director, Exchange Policy Department, stating the nature of transactions that are desired to be dealt with and it should be confirmed that trained staff and the required systems and equipments to handle foreign currency transactions are available.
(ii) Once the Head Office/Principal Office of a bank or NBFI has obtained an authorisation to deal in foreign exchange, it would be free to decide the names of those of its branches, which would conduct foreign exchange business. In case it is decided that a branch which was not previously authorised to deal in foreign exchange, is to be allowed to start such business, its name and address shall be communicated to the Director, Exchange Policy Department, who will allocate a code number to the branch for statistical purpose. The branch can, thereafter start dealing in foreign exchange.
(iii) Every Branch of a bank authorised to deal in foreign exchange, is however authorised to purchase foreign currency notes, coins, travellers cheques and demand drafts. Such transactions should be reported to a branch designated by its head office/controlling office for consolidation and reporting to the State Bank through the prescribed returns.
(iv) The State Bank may, without assigning any reason, refuse to grant an authorisation to deal in foreign exchange. It may also withdraw an authorisation already granted or prohibit dealings in foreign exchange by any branch of an Authorised Dealer in accordance with the powers vested vide section 3B of the Act.
(v) A list of Authorised Dealers in Foreign Exchange is given in Appendix IV.
- Authorised Dealers to engage in Transactions within the Scope of their Authorisations.
An Authorised Dealer shall, in all its dealings in foreign exchange, comply with such general or special instructions which the State Bank may give from time to time and shall not engage in any transaction involving foreign exchange which is not in conformity with the terms of its authorization.
- Authorised Dealers should satisfy that no Contravention or Evasion of the Provisions of the Act is contemplated.
An Authorised Dealer shall, before undertaking any transaction in foreign exchange within the scope of its authorisation, on behalf of any person, require that person to make such declarations and to give such information as will reasonably satisfy it that the transaction will not involve and is not designed for the purpose of any contravention or evasion of the provisions of the Act or of any rules, directions or orders made thereunder. If any person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith, the Authorised Dealer should refuse to undertake the transaction and should, if it has reason to believe that contravention or evasion of the provision of the Act is contemplated, report the matter to the State Bank.
- Authorised Money Changers (AMCs).
In terms of the powers vested by Section 3A of the Act the following terms and conditions are laid down for grant of AMC’s Licence to Pakistani nationals and resident Pakistani firms and companies: –
(i) Application for grant of licence to act as an AMC should be made to the area office of the Exchange Policy Department where the applicant’s business is located. The application should contain full particulars as regards business conducted by the applicant, location of business premises, name and address of the proprietor/partners/directors of the applicant and the same may be routed through an Authorised Dealer/applicant’s banker who should enclose a confidential report on the financial standing and creditworthiness of the applicant and its suitability for grant of AMC’s licence. The grant of AMC’s Licence will be subject to the following terms and conditions: –
(a) Applicant will be required to pay application-processing fee (non-refundable) through pay order in favour of State Bank for grant of fresh licence and for renewal upto 30th June of each year. Fee for the purpose will be as under: –
(aa) (Single office)
Fresh licence Rs.100,000/-
Renewal of licence Rs.12,000/-
(bb) (Multi Branches)
Head office Rs.200,000/-
Branch Rs.100,000/- each
Renewal of licence
Head office Rs.60,000/-
(b) An applicant for grant of fresh licence will also produce the following documents: –
(aa) Police verification report to the effect that the applicant was not involved in any illegal activities. However, this will not be applicable in case of existing Money Changers. AMC licence will not be issued to a person who was found involved in illegal activities or was convicted by a Court of Law.
(bb) Copies of National Identity Card and NTN Certificates of proprietor/partners/ directors.
(cc) Wealth Statement and evidence of being a taxpayer as detailed in the following sub-paragraphs (ii) and (iii).
(dd) Evidence to the effect that the applicant possesses a suitable business space built on an area of not less than 10′ x 10′ in size in which no other business activity of whatsoever nature will take place. Proper counter(s) shall be installed for public convenience. However, this requirement will not be applicable for hotels, curio shops, and booths at airports/departmental stores or where specially permitted by the State Bank on the merit of each case. The State Bank of Pakistan will have the right to declare any premises un-suitable for the conduct of money changer’s business, if it is not suitably located in a public place.
(ee) An undertaking to the effect that the request is being made for single office/multi branches, as the case may be, and the applicant has thoroughly studied the Code of Conduct for AMCs and will abide by all rules and regulations mentioned therein or issued from time to time.
(ff) Evidence to the effect that the applicant has reasonable knowledge and experience in the field of foreign exchange business.
(c) Application for renewal of licence should be made to the State Bank through an Authorised Dealer/applicant’s banker at least two weeks before the expiry date of relative licence alongwith the following documents:
(aa) Original AMC’s Licence
|(bb) Application processing fee as laid down in sub-para 5 (i) (a).
(cc) Tax Paid Challan/No Demand Certificate issued from Income Tax Department.
(ii) Where an applicant wishes to establish more than one branch, its net worth capital should not be less than Rs 5 million, whereas in case of a single office it should not be less than Rs 2 million as per wealth statement filed with the Income Tax Department.
(iii) AMC’s licence shall be granted only to Pakistan nationals and resident Pakistani firms and companies who are paying Income Tax. An applicant for more than one branch should be a taxpayer of at least Rs 70,000/- per annum and for single branch licence Rs 25,000/- per annum. Tax and bank loan defaulters will not be eligible for grant of licence.
- Code of Conduct for Authorised Money Changers.
(i) AMC’s activities will be restricted to purchase/sale of foreign currency notes/coins only.
(ii) AMC’s commercial name should not include words such as bank, financial institution, investment company, trading company, real estate or any other word indicative of activities other than money changing business. However, hotels, curio shops, departmental stores or any other premises specially permitted by the State Bank can use their original name.
(iii) An AMC shall not be permitted to deal in transfers i.e. T.Ts, D.Ds etc. However, there will be no restriction on bringing in foreign currency through banking channels from outside the country. Further, the money changers shall be prohibited to undertake any other banking activity such as acceptance of deposits, advancing of loans, issuance of letters of credit, discounting bills of exchange, purchases/sales of traveller’s cheques and stocks/securities, release of foreign exchange for travel abroad on various accounts as defined in Chapter XVII of Foreign Exchange Manual as modified through F.E. Circulars from time to time or purchase/sale of gold and silver in any form or of other precious metals.
(iv) Dealings between AMCs and customers should be supported by receipts/ vouchers for all transactions. Every receipt provided to the customer shall bear the name of Money Changer in printed form, date, nature of transaction i.e. sale/purchase, currency dealt, rate, amount and signature of dealer. Further, a notice, advising customers of the necessity of obtaining receipts for all purchases/sales of foreign currencies, shall be prominently displayed by AMCs. AMCs will also display at a prominent place in the business premises, rates of foreign currencies applicable to purchases and sales daily at their counter, in the prescribed format of Exchange Rate Chart (Appendix V-1) and all deals must be carried out at the rates specified in the Rate Chart. However, AMCs may negotiate different rates for large transactions.
(v) All purchases and sales made by AMCs in terms of their licence will be at their own risk and responsibility. They will make their own arrangements to procure the stock of various currency notes and coins for meeting their daily requirements and also to dispose of their surplus holdings. They should also make arrangement to ensure that the foreign currency notes handled by them are genuine. The AMCs will not be entitled to make any purchases of foreign currency notes/coins from any Authorised Dealer against payment in rupees.
(vi) AMCs shall maintain proper books of accounts and upon State Bank’s directive, provide all data, information, books of accounts and other record relating to their business.
(vii) Any change in the business premises/partners/directors of an AMC which has been granted licence will require prior approval of the State Bank. Separate fee for each new branch at the scale prescribed in item (i)(a) above will be required to be paid.
(viii) The name/title of the business shall be displayed clearly and in a bold face outside the business premises.
(ix) The business premises should be equipped with Telephone, Fax and Electronic Cash Registers or some other electronic device for printing serially numbered receipts of their sales/purchases transactions.
(x) AMCs will ensure that an effective system of internal controls and checks and balance is in place.
(xi) AMCs will follow same opening hours as prescribed for the banks. However, they may observe extended business hours.
(xii) AMCs will be free to trade between themselves domestically with proper accounting procedure as laid down above.
(xiii) AMCs will submit a weekly statement of sales and purchases, for weeks ending on 8th, 15th, 22nd and last day of each month to area office of the Exchange Policy Department within 3 days in the prescribed proforma (Appendix V-2).
(xiv) AMCs shall be bound by the rules and regulations prescribed by the State Bank from time to time. Any violation of such rules may result in penalty, suspension or cancellation of licence.
- Inspection of Authorised Money Changers.
The State Bank shall have the right to visit the premises and inspect the records and books of accounts of the AMCs. The State Bank may withdraw the licence of any such AMC who:
(i) does not apply for renewal of licence before its expiry,
- (ii) does not commence its activities within three months from the date of
(iii) stops its activities for a period of three consecutive months,
(iv) does not submit weekly statement of sales and purchases of foreign currencies for eight consecutive weeks and,
(v) is declared bankrupt or whose liquidity or solvency is endangered.
AUTHORISED RATES OF FOREIGN EXCHANGE
- AUTHORISED RATES OF FOREIGN EXCHANGE
- Section 4 (2) of the Act lays down that, except with the general or special permission of the State Bank, all transactions in foreign exchange shall be carried out at rates authorised by the State Bank. A general permission has been given to Authorised Dealers to determine their own rates of exchange, both for ready and forward transactions for the public, subject to the condition that the margin between the buying and selling rates should not exceed fifty paisa per US dollar or its equivalent in other currencies. This condition does not apply to inter-bank transactions.
- In the case of an import bill against which no forward cover has been taken by the importer, the exchange rate prevailing on the date of lodgement of the bill would apply
FORWARD EXCHANGE FACILITIES
(i) Authorised Dealers may enter into contracts for forward purchase or sale of foreign currencies subject to the regulations set out in this chapter. Before entering into a forward exchange contract with the public, the Authorised Dealers should satisfy themselves about the bonafides of the applicants and ensure that forward cover is required for genuine and firm transactions of approved nature. For this purpose, they should call for verification, the offers and acceptance and/or formal contracts duly signed by the exporters/importers and/or letters of credit. Originals or photocopies of these documents should be retained by the Authorised Dealers. The number and date of the forward contract should be endorsed by the Authorised Dealers under their seal and signature on all the copies including the originals, even in cases where these are returned to the applicants. Similarly, Authorised Dealers should indicate, on the relative forward contract, the particulars of the documents which have been verified by them and on the basis of which the forward contract has been booked.
(ii) Forward cover may be provided even if the letter of credit has been opened through another Authorised Dealer or contract etc. has been registered with or export documents have been handled by another Authorised Dealer. Such cover would be provided on the basis of a certificate from the concerned Authorised Dealer confirming, inter-alia, that no forward cover has been provided by it against the transaction.
- Forward Quotations.
Authorised Dealers may provide forward cover for exports, imports, foreign private loans covered under paragraph 8, Chapter XIX (on roll-over basis) and repatriable foreign currency loans mentioned in paragraph 15, Chapter XIX of the Manual (excluding loans obtained by foreign contractors and branches of foreign companies) for any duration subject to any restriction mentioned in subsequent paragraphs, in accordance with the conditions prevailing in the market. No forward transaction may, however, be made for a tenor of less than one month. Further, one month’s forward transactions should be for fixed maturity. In case payment is made/received within one month, the spot selling/buying rate will be applied and the relevant contract will be closed out at the maturity date.
- Forward purchase of foreign exchange against export of goods.
(i) In the case of export of goods from Pakistan against a firm contract, Authorised Dealers may purchase foreign currencies forward for delivery upto six and a half months from the last date of shipment as provided in the contract/EPC form/letter of credit. Such purchases may be made at any time from/after the date of contract/EPC form/letter of credit. Purchases in case of exports on consignment sale basis, may be made at any time after the shipment has taken place but the last date of delivery should not fall after six and a half months from the date of shipment. In both the cases of exports against firm contract and on consignment basis where State Bank’s prior approval has been obtained for the realisation of sale proceeds beyond six months, the purchase contract may provide for delivery upto fifteen days after the extended date for realisation.
(ii) In the case of export of goods to be invoiced in any convertible currency other than U.S. Dollar, it is permissible to buy forward the concerned currency in terms of U. S. Dollar, if the exporter wishes to cover only such risk and to carry dollar versus rupee risk himself. The Authorised Dealers will conduct such transactions within their approved ‘Exchange Exposure’ limits. On realisation of the proceeds the equivalent U. S. Dollar amount at the booked rate will not be delivered but converted at the spot rate and the rupee equivalent will be paid to the exporter.
- Forward sale of foreign exchange against import of goods.
(i) Authorised Dealers may sell foreign currencies forward in cover of imports into Pakistan on cash basis under letters of credit or registered contracts. The sale contract may be booked at any time after opening of letter of credit or registration of contract. A forward sale may also be made after the receipt of an import bill drawn on usance basis, but such a sale may not provide for delivery beyond the date of maturity of the bill.
(ii) Forward cover facility will not be made available in respect of the following: –
- Import of crude oil and POL products.
- Imports by Federal or Provincial Government Departments or Corporations set up by Government and Industrial undertakings in which Government holds majority interest other than TCP and those public sector undertakings which export part of their products.
- Sale of foreign exchange to overseas bank’s branches and correspondents to cover rupee bills negotiated by them under letters of credit established by Authorised Dealers in Pakistan.
- Forward sale against investment by Non-Residents.
(i) Authorised Dealers may sell foreign currencies forward to non-residents for portfolio investment made by them in rupee denominated shares and securities on repatriation basis out of funds remitted from abroad, as permitted vide Chapter XX of the Manual. The forward cover can also be provided on the date of conversion of foreign currency into rupees, pending their investment. Such sales would be made only for the amount brought in or the face value of the security, whichever is higher. No forward cover will be provided for dividend/interest/coupon income. Forward cover will also not be provided for Foreign Direct Investment. The maximum period of sales should be twelve months, which may be extended in the manner laid down in paragraph 9.
(ii) A forward sale may also be made by an Authorised Dealer other than the one maintaining the Special Convertible Rupee Account or providing custodial service for investment provided the customer gives a declaration that the investment has been made on repatriation basis and that cover has not already been obtained from any other Authorised Dealer.
6.Forward transactions between Authorised Dealers.
Authorised Dealers may freely enter into forward transactions with each other, provided their ‘Exchange Exposure’ at the end of the day remains within the prescribed limits.
- Forward transactions with overseas branches and correspondents.
Authorised Dealers may enter into forward transactions with their overseas branches and correspondents in respect of currencies other than U.S. Dollar, in cover of transactions entered into by them with their customers.
- Forward cover to the Investment Banks, Leasing and Modaraba Companies.
Authorised Dealers may provide forward cover to the Investment Banks, Leasing Companies and Modaraba Companies holding restricted Authorised Dealer’s Licences issued by the State Bank of Pakistan, in respect of the funds mobilized by them from abroad against issuance of Certificates of Investment and surrendered to the State Bank provided they have not obtained forward cover from the State Bank.
- Extension of forward contracts.
It would be permissible to extend the contracts on roll over basis even for less than one month if the export proceeds have not been realised and extension in the period of realisation has been granted by the Authorised Dealer/State Bank or import bill is not paid in accordance with the terms of letter of credit/registered contract. Such extensions would be made by closing out the original contract and booking of a fresh contract at the new rate.
10.Discounting of usance export bills.
In case an exporter books forward cover and presents there against an export bill drawn on usance basis for discounting, the Authorised Dealer may treat discounting of the usance bill as delivery against the forward contract provided such bills are presented for discounting during the option delivery period only. In all other cases the foreign currency receipts in respect of discounted bills will not be considered as delivery against forward contract and the Authorised Dealer will discount the bill at its current applicable rate and close out the contract on maturity.
- Rates at which forward contracts may be closed out.
(i) Forward contracts, which are not taken up, may be closed out on the date of maturity. In the case of closure of forward exchange contracts, the difference between the booked forward rate excluding the element of usance, if any, and the prevailing spot rate for the counter transaction on the day of the maturity will be recoverable from or payable to the customer, as the case may be.
(ii) The State Bank reserves the right to direct under sub-section (2) of section 4 of the Foreign Exchange Regulation Act, 1947 that all forward contracts or any particular forward contract or class of forward contracts shall be closed out at the rate ruling on the day on which they were booked or on any other day within the currency of the contract(s) at its discretion and not necessarily at the rates ruling on the day on which they are closed out.
- Cancellation of forward contracts.
If in any particular case or cases State Bank is not satisfied with the transactions for which forward cover has been booked, it may direct the Authorised Dealers to cancel the forward contract immediately or within such period as it may prescribe.
- Switch over of exchange contract in cover of imports/exports.
(i) Where the foreign beneficiary of a letter of credit is changed in accordance with the instructions contained in Chapter XIII, Authorised Dealers may allow the forward foreign exchange booked in respect of the original letter of credit to be used for the new letter of credit provided the currency and the description of the commodity of the new letter of credit are the same as of the original letter of credit.
(ii) Where delivery against a forward sale made by an exporter against a particular contract or letter of credit cannot be made due to non-shipment, the exporter may give delivery out of export proceeds repatriated by him against other contract/letter of credit.
- Forward covers against foreign currency accounts.
Persons maintaining foreign currency accounts with the Authorised Dealers in Pakistan can sell forward the balances held in their accounts to the importers in connection with import letters of credit/indents, proforma invoices, orders registered with the Authorised Dealers for imports on consignment basis. The procedure to be followed in this regard is as under:
(i) The importer and foreign currency account holder (hereinafter called the “seller”) will agree to the deal under intimation to the Authorised Dealer. For smooth conduct of transaction, it is necessary that the importer and seller are the customers of the same Authorised Dealer.
(ii) The seller will authorise the Authorised Dealer to mark a lien on the respective foreign currency account to the extent of the amount involved.
(iii) The Authorised Dealer will make separate arrangement with the importer for recovery at the opportune time of rupee equivalent at the forward rate agreed to between the importer and the seller.
(iv) As and when payment is required to be made for imports:
- The Authorised Dealer will debit the foreign currency account of the seller, take delivery of the amount from State Bank of Pakistan by lifting the cover, where cover has been obtained, take the foreign currency amount in the Nostro account, report the same as inward remittance under the code meant for Home Remittance and credit rupee equivalent at the forward rate to the seller’s non-convertible rupee account.
- Simultaneously, the Authorised Dealer will lodge the documents in its books at the forward rate agreed to between the importer and seller. The rupee recoveries from the importers will be made by the Authorised Dealer as per its own arrangement.
- The Authorised Dealer will report the import transaction in the monthly foreign exchange return in the normal way on Form ‘I’- Schedule E-2.
(v) In case the importer fails to take up the contract arranged with the seller, it will be closed out and the exchange rate differential settled on the maturity date in the same manner as other forward sale contracts are closed out e.g. in accordance with paragraph 11 of this chapter.
(vi) The provisions of paragraphs 4 & 9 of this chapter will, ipso-facto, apply to the forward contracts made in terms of this para.
FOREIGN CURRENCY ACCOUNTS OF AUTHORISED DEALERS AND SALE OF FOREIGN CURRENCIES
This chapter sets out the regulations governing purchase and sale of foreign currencies by Authorised Dealers in the inter-bank market in Pakistan as well as their purchase from and sale to the State Bank and overseas branches and correspondents.
- Accounts in Foreign Currencies.
Authorised Dealers are permitted to open and maintain accounts in all fully convertible currencies with their branches and correspondents abroad, subject to the condition that opening of every new account should be reported to the Director, Exchange Policy Department by a letter giving the name and address of the foreign branch or correspondent with whom the account has been opened and the currency of the account.
- Foreign Currency held at the disposal of the State Bank.
Foreign currency balances of Authorised Dealers, whether operated by their Head/Principal Offices or branch offices, shall at all times be held at the disposal of the State Bank which may give such directions for their disposal as it may consider necessary and expedient. The State Bank may direct Authorised Dealers at any time to sell either ready or for forward delivery, foreign currency or currencies held by them to the State Bank or to such other person or persons as the State Bank may direct.
4.Exposure Limits and Nostro Limits.
- i) The State Bank fixes from time to time limits for foreign exchange exposure on an overall basis for all currencies for each bank authorised to deal in foreign exchange. These limits are intended to cover the positions of all the branches in Pakistan of banks incorporated abroad, and all the branches, including overseas branches, if any, of banks incorporated in Pakistan. Head/ Principal Offices of Authorised Dealers should ensure on day to day basis that these limits are not exceeded. It is advisable that Authorised Dealers maintain square or near square exposure.
- ii) There are no Nostro Limits for balances held abroad.
5.Calculation of Exposure Limits.
The guidelines for calculating the exposure appear as a Memorandum at the end of Appendix III.
6.Exchange Exposure Position.
Authorised Dealers are required to report to the Exchange & Debt Management Department, State Bank of Pakistan, all the foreign exchange transactions (ready, forward, take-ups, cancellation and adjusting entries etc.) entered into by them with customers as well as with other Authorised Dealers that create foreign exchange exposure in any currency, transacted during a day on floppy diskettes using the software installed by SBP on each bank’s computers.
Floppy diskettes alongwith following reports generated by the software, duly signed by an Authorised Officer, are required to be submitted on daily basis to the Exchange & Debt Management Department, State Bank of Pakistan by close of office hours:
- a) Deals
- b) Take-ups
- c) Cancelled deals
- d) Adjusting entries
- e) Closing balance
- Purchase and sale of Foreign Currencies.
Authorised Dealers may freely purchase foreign currencies, as there are no restrictions on inward remittances. All sales of foreign currencies to customers must, however, be in cover of genuine transactions approved by the State Bank or by the Authorised Dealers under powers delegated to them.
- Inter-bank transactions.
Authorised Dealers may freely buy and sell foreign currencies from and to other Authorised Dealers in Pakistan provided they remain within their permissible exposure limit.
9.Purchase of U.S. Dollars from and their sale to the Authorised Dealers by the State Bank.
The State Bank may, at its discretion, buy U.S. dollars from and sell to the Authorised Dealers both ready and forward.
- Purchase and sale of Foreign Currency from and to Banks’ Overseas Branches and Correspondents.
Authorised Dealers may freely purchase both ready and forward one foreign currency against another from their overseas branches and correspondents in order to cover their positions. Purchase of foreign currencies from and their sale to banks’ overseas branches and correspondents against Rupee may be made in accordance with the provisions of Chapter VII.
PRIVATE FOREIGN CURRENCY ACCOUNTS
- Opening of Foreign Currency Accounts with Banks in Pakistan.
(i) Authorised Dealers may, without prior approval of the State Bank, open with them foreign currency accounts of the following: –
- a) Pakistan Nationals resident in or outside Pakistan, including those having a dual nationality.
- b) All foreign nationals, whether residing abroad or in Pakistan.
- c) Joint Account in the names of residents and non-residents.
- d) All diplomatic missions accredited to Pakistan, and their Diplomatic Officers.
- e) All International Organizations in Pakistan.
- f) Firms and companies established/incorporated and functioning in Pakistan, including those having foreign share-holdings except as outlined in sub-para (v) below.
- g) Charitable Trusts, Foundations etc. which are exempted from income tax.
- h) Branches of foreign firms and companies in Pakistan.
- i) Non-resident Exchange Companies even if owned by a bank or financial institution.
- j) All foreign firms/corporations, other than banks and financial institutions owned by Banks, incorporated and operating abroad provided these are owned by persons who are otherwise eligible to open foreign currency accounts.
- However, the facility is not available to airlines and shipping companies operating in/through Pakistan or collecting passage and freight in Pakistan and the investment banks, leasing companies and modaraba companies including those which have been granted licences to deal in foreign exchange.
- (ii) Opening of foreign currency account covered by sub-para (i) is subject to the condition that these are not fed with:
- a) any foreign exchange borrowed under any general or specific permission given by the State Bank, unless otherwise permitted;
- b) any payment for goods exported from Pakistan;
- c) proceeds of securities issued or sold to non-residents;
- d) any payment received for services rendered in or from Pakistan;
- e) earnings or profits of the overseas offices or branches of Pakistani firms and companies including banks, investment of resident Pakistanis abroad; and
- f) any foreign exchange purchased from an Authorised Dealer in Pakistan for any purpose.
- (iii) Corporate Bodies/Legal entities cannot generate funds from the Kerb market for deposit in their foreign currency accounts.
- (iv) Foreign currency accounts can be fed by remittances received from abroad, travellers cheques issued outside Pakistan (whether in the name of account holder or in the name of any other person), foreign currency notes and foreign exchange generated by encashment of securities issued by the Government of Pakistan.
- (v) Opening by firms/companies of foreign currency accounts, which are to be fed through the funds of foreign equity/foreign currency loans raised for establishment of industrial and other projects and by contractors who receive payments in foreign exchange from the employers, would be as per procedure laid down in paragraph 8 of this chapter.
- (vi) These accounts are free from all Foreign Exchange restrictions. In other words, account holders have full freedom to operate on their accounts to the extent of the balance available in the accounts either for local payments in Rupees or for remittance to any country and for any purpose or for withdrawals in the shape of foreign currency notes and travellers cheques. However, a restriction was placed on withdrawal in foreign currency from some categories of foreign currency accounts existing as on 28th May, 1998. The instructions issued vide FE Circular No.12 of 1998, as amended from time to time, would continue to be operative, till the restrictions are lifted. Holders of such accounts are, however, free to transfer their accounts from one Authorised Dealer to another.
- (vii) Accounts can be maintained and payments (excluding local payments) made in any currency of choice of the account holder. Credit Card facility can be obtained by the account holders to the extent of the balances held in their respective accounts, for utilization in and outside Pakistan provided settlement of the bills in respect of expenditure within the country is made in Rupees only and the relevant foreign currency amount is taken by the Authorised Dealers in their daily exchange position.
- (viii) Authorised Dealers can mark lien on the foreign currency accounts in respect of banking facilities like credit cards, bank guarantees and loan/credit etc. availed of by the account holders in and outside Pakistan. The aggregate amount of the facilities availed of in and outside Pakistan should not, however, exceed the balance in the respective accounts at any point of time and the regulations on credit should be strictly adhered to.
- (ix) Head/Principal Offices of Authorised Dealers will send to the State Bank of Pakistan, Central Directorate, Karachi such returns in respect of these foreign currency accounts as may be prescribed from time to time.
- Different Schemes for Foreign Currency Accounts.
Foreign currency accounts covered by paragraph (1) could be opened by the Authorised Dealers upto 28th May, 1998 under the State Bank’s forward cover scheme, and thereafter under the rules introduced vide FE Circular No.25 of June 20, 1998. Separate ledgers will be maintained by the Authorised Dealers for these foreign currency accounts. In addition, Special Foreign Currency Accounts can be opened with the specific or general permission of the State Bank.
- State Bank’s Forward Cover Scheme.
(i) Under the State Bank’s forward cover scheme, the Authorised Dealers will fix their own rates of interest for Term Deposits of 3 months, 6 months, 12 months, 2 years and 3 years provided they do not exceed the average Bid rates provided by British Banker’s Association (BBA) for the concerned currencies at the close of business on the previous working day plus the margins prescribed by the State Bank from time to time. The maximum rates for payment of interest, including the margins allowed by the State Bank, are published daily by the Foreign Exchange Rates Committee.
(ii) As regards foreign currency deposits of less than 3 months including Call Deposits, Savings Bank, Special Notice etc. accounts, Authorised Dealers shall pay interest on the basis of return last allowed on similar Rupee PLS Accounts provided the rate at which interest is paid does not exceed the interest rate applicable to 3 months Term Deposits of the relevant foreign currency.
(iii) Authorised Dealers shall sell all the deposits in foreign currency accounts to the State Bank in multiples of US$ 1,000/-, £ Stg.1,000/-, Euro 1,000/- and J. Yen 250,000/-. State Bank shall cover exchange risk of all such deposits as well as interest accruing thereon at the option of the Authorised Dealers, subject to payment of fee at the time of taking the forward cover at the rate(s) prescribed by the State Bank from time to time. Fee is payable on the full amount of forward cover obtained notwithstanding whether it is in respect of the amounts of deposit or for both the amount of deposit and interest. In case of premature withdrawal of deposit, fee for the unexpired period is refundable.
- Acceptance of Deposits from foreign banks operating abroad and overseas branches.
As an exception to the rules set out in paragraph 1(i) to (j) of this chapter, Authorised Dealers can accept foreign currency deposits from their overseas branches and foreign banks operating abroad, including financial institutions owned by them, provided the amount and period of maturity of such deposits is not less than those prescribed from time to time. Interest on these foreign currency deposits can be paid by the Authorised Dealers annually, six monthly or quarterly in accordance with the option exercised by the depositor in writing at the time of placement of deposits. Interest can be paid at the rate not exceeding the prescribed margins over Bid rate for the respective period as provided by the BBA at the close of business on the working day immediately preceding the date of deposit as published by the Foreign Exchange Rates Committee.
- Payment of subsidy on account of interest differential.
Where the interest paid on foreign currency Term Deposits of 3, 6 and 12 months on the basis of BBA’s bid rates as prescribed in the earlier paragraphs exceeds the return last allowed on similar Rupee PLS Accounts, State Bank shall reimburse the amount of differential on account of the excess to the Authorised Dealers. For the purpose of claiming reimbursement of the differential, Authorised Dealers should furnish to the Chief Managers’ Offices of the State Bank, details of individual foreign currency Term Deposits in the prescribed form (Appendix V-3) while surrendering the amount of foreign exchange to the State Bank. This statement will be submitted in triplicate and bear running serial number. After the interest has been paid, claim for payment of interest differential will be lodged by the Authorised Dealers with the Chief Managers’ Offices of the State Bank in the form given at Appendix V-4.
- F.E. 25 Scheme.
(i) The amounts of foreign currency deposits accepted outside State Bank’s forward cover scheme i.e. under F.E. Circular No. 25 of 1998, are not required to be surrendered to the State Bank and the Bank will not provide any forward cover for the same. The Authorised Dealers accepting such deposits are free to lend, invest and place on deposit such funds in Pakistan and abroad subject to the observance of regulations prescribed under the Banking Companies Ordinance.
(ii) Authorised Dealers are free to decide the rate of return offered on such deposits, provided the maximum rate of return does not exceed LIBOR applicable on the date of determination of such return/profit.
- Special Foreign Currency Accounts of Private Power Projects.
(i) Authorised Dealers may open the following Special Foreign Currency Accounts/Off-shore Foreign Currency Accounts of private power projects in Pakistan as per the Implementation Agreements (IAs) entered into with Private Power and Infrastructure Board (PPIB), Government of Pakistan. These accounts will be maintained during the construction and operation of the projects for the following purposes subject to the conditions mentioned against each and the balances held in such accounts will be retained by the Authorised Dealers in addition to their Exposure Limits and will also not be required to be reported under F.E. 25 Scheme:
- a)Special Foreign Currency Account in or outside Pakistan.
This will be maintained for deposit of foreign equity and foreign currency loan under the Loan Agreement registered with the State Bank. The amounts available therein will be utilized for the purposes of the project as provided for in the IAs.
- b) Special Foreign Currency Insurance Account.
This will be maintained for depositing amounts required for payment of insurance/reinsurance premia and for receiving insurance/reinsurance claims against covers taken in foreign currency outside Pakistan with the approval of the Controller of Insurance or with State Bank’s approval from an insurer in Pakistan, provided that amounts not required for meeting expenditure in foreign exchange will be repatriated to Pakistan and converted into rupees.
- c) Off-Shore Foreign Currency Control Account.
This will be maintained subject to the condition that PPIB/Independent Engineer would determine for each project the portion of revenues required to meet the foreign currency cost for operating the project.
- d)Off-Shore Foreign Currency Operating Account.
This will be maintained subject to the condition that O&M expenses to be remitted/deposited periodically to this account will be apportioned by the PPIB/Independent Engineer.
- e) Off-Shore Disputed Payment Escrow Account.
This will be maintained subject to the condition that the balance will be remitted to Pakistan once the dispute is over.
- f) Off-Shore Foreign Currency Debt Payment Account.
This will be maintained for depositing the amount required for Debt Service.
- g)Off-Shore Debt Service Reserve Account.
This will be maintained subject to the condition that this account will be liquidated simultaneously with the retirement of debt and the maximum balance in this account would not exceed the next 12 months Debt Service Payment (both Principal and Interest).
- h)Off-Shore Foreign Currency Maintenance Reserve Account.
This will be opened and maintained subject to the condition that this amount will be liquidated simultaneously with the life of the agreement and that this account will hold the maximum of US$ 3 million during the term of Power Purchase Agreement.
- i)Off-Shore Foreign Currency Dividend Account.
- (i) This will be used for receiving remittance of dividends as and when declared and paid by the company.
- (ii) A monthly statement in the form prescribed at Appendix V-5 will be submitted for each account separately alongwith a certificate from the company’s auditors to the effect that the payments made from the accounts are strictly in accordance with or covered under the IA, Power Purchase Agreement or other agreements, if any, approved by the Government.
- (iii) Interest earned on balances held in these accounts will be repatriated to Pakistan.
- (iv) There will be nil balance in the Main Control Account and all other accounts after the expiry of the relevant Agreement Period.
- (v) Any earnings from dealing in currency/exchange should also be repatriated to Pakistan.
- (vi) Authorised Dealers will ensure that Income Tax, wherever due on payments made through the accounts, is duly deducted and paid to the Income Tax Authorities.
- (vii) Authorised Dealers may also open Special Foreign Currency Accounts of the foreign EPC (Engineering, Procurement and Construction) and O&M (Operation and Maintenance) contractors of the Power Projects operating in Pakistan with the approval of the Government for receipt of foreign currency amounts under the contracts awarded to them by the Power Projects and its utilization in accordance with the EPC/O&M contracts.
- Special permission for Foreign Currency Accounts.
- (i) Foreign Oil/Mineral exploration companies and foreign contractors and their foreign sub-contractors may be allowed by the Authorised Dealers to open foreign currency accounts under the Scheme described in paragraph 6 or Special Foreign Currency Accounts subject to the condition that they will meet all their expenditure in Pakistan including salaries of foreign nationals/non-residents in Pak Rupees only, out of rupee payments, if any, received by them in terms of their contracts/by converting in the inter-bank market funds received from their Head Offices/by converting funds from their foreign currency accounts in the inter-bank market.
- (ii) (a) Firms and companies raising foreign equity and foreign currency loan may be allowed by Authorised Dealers to open special foreign currency account for receiving and retaining the foreign funds on submission of information about the source of foreign funding and the amount required to be retained in foreign currency. The funds available in such foreign currency accounts can be used by the account holders for making only those types of payments which are otherwise permissible in terms of the instructions laid down in this Manual (e.g. imports, consultancy) and which are related to the business of the account holder. Any amount not so used will be required to be converted into rupees in the inter-bank market and no withdrawal will be allowed in the shape of foreign currency notes.
- (b) The concerned Authorised Dealer will be required to submit monthly statements in the prescribed proforma (Appendix V-5) alongwith the related import documents, invoices, agreements etc.
- General permission for Maintenance of Accounts abroad by Resident Pakistanis.
- Pakistan nationals resident in Pakistan are not permitted to open or maintain any foreign currency accounts with banks etc., outside Pakistan. As an exception, they can maintain foreign currency accounts abroad in any country other than Afghanistan, Bangladesh, India and Israel provided the balances held in such accounts do not exceed U.S.$ 1000/- or equivalent thereof in other currencies as provided in Government Notification No. SRO 1016(1) 79 dated the 17th October, 1979. These accounts cannot, however, be operated from Pakistan without the prior approval of the State Bank.
10.Reporting of receipts into and payments from foreign currency accounts.
- Receipt of foreign currency amounts for credit to the foreign currency accounts under the Forward Cover Scheme should be reported by the Authorised Dealers as “Purchase” on Schedule ‘J’ under Code 9718 in the case of accounts opened in terms of paragraph 1 and under Code 9828 in respect of accounts opened under special permission granted by the State Bank in accordance with the provisions of paragraphs 7 & 8 ibid. Similarly payments out of the foreign currency accounts should be reported by the Authorised Dealers as “Sale” on Schedule E-4 under Code 1718 in the former case and under Code 1828 in the later case. Transactions in accounts covered by paragraph 6 are not required to be reported in the summary statements.
- Reporting of local disbursements from foreign currency account.
- Authorised Dealers should report the payments in rupees from foreign currency accounts as “Sale” on Schedule E-4 under Code 1718 or 1828, as the case may be. The Rupee receipts should simultaneously be reported as “Purchase” on relevant schedules under a code appropriate to the purpose of the receipt.
12.Reporting of interest on foreign currency accounts.
- Interest paid by Authorised Dealers on Foreign Currency Accounts should be reported as “Sale” on Schedule E – 4 of the monthly foreign exchange returns under Code 1226.
13.Surrender of Foreign Exchange.
- In exercise of the powers conferred by Section 9 of the Act, the Government have issued Notification No. SRO 1016(1) 79 dated the 17th October, 1979 (Appendix II-8) requiring all citizens of Pakistan and other persons residing in Pakistan continuously for six months or more, who become the owner of any foreign exchange whether held in Pakistan or abroad, to sell such foreign exchange to an Authorised Dealer within three months of the date of acquisition by them of such foreign exchange. The provisions of the aforesaid notification do not apply to the following cases viz:
- (i) Foreign exchange held abroad by foreign diplomats and foreign nationals employed in Embassies and Missions of foreign countries in Pakistan.
- (ii) Foreign exchange held abroad by foreign nationals or foreign business houses, except to the extent that it represents their earnings abroad in respect of business conducted in Pakistan or services rendered while in Pakistan.
- (iii) Foreign exchange held by residents in Pakistan in countries other than Afghanistan, Bangladesh, India and Israel provided the amount does not exceed in the aggregate U.S. $1000/- or equivalent thereof in other currencies.
- (iv) Afghan currency whether held in or outside Pakistan.
- For the purposes of the aforesaid notification the term “residents in Pakistan” excludes citizens of Pakistan in foreign countries so long as they stay outside Pakistan, but includes foreign nationals who reside continuously in Pakistan for six months or more.
14.Payments by Foreign Nationals in Foreign Currencies.
- Payments in foreign currency by foreign nationals residing in Pakistan to or on behalf of residents of Pakistan whether Pakistanis or foreign nationals are prohibited. Foreign nationals should not, therefore, directly or indirectly, make foreign currency available to the residents or to other persons on their behalf against payment in Rupees. Such payments are prohibited even from their foreign currency accounts which they are permitted to maintain and operate from Pakistan.
15.Foreign Exchange received by Residents in Pakistan.
- Payments in foreign exchange received by an Authorised Dealer on behalf of a resident in Pakistan must not be retained in foreign exchange but must be converted into Rupees unless the State Bank has given general or special permission to the beneficiary to retain the foreign exchange received by him.
NON-RESIDENT RUPEE ACCOUNTS OF FOREIGN BANK BRANCHES AND CORRESPONDENTS
Rupee accounts of all banks’ overseas branches or correspondents are treated as non-resident accounts. The accounts of different branches of the same bank situated in different countries must be identified separately and the accounts of each branch or group of branches in one country should be designated as accounts of that country.
- New Non-Resident Accounts of Banks.Authorised Dealers may open new non-resident Rupee accounts in the names of their overseas branches or correspondents without the prior approval of the State Bank.
3.Operations on Non-Resident Bank Accounts.
Drawings can be made on the non-resident Rupee accounts of overseas banks by their branches and correspondents located in any other country irrespective of their monetary area.
- Transfer to the Credit of Non-Resident Bank Accounts.
Any payment for credit to non-resident Rupee account of any bank’s overseas branch or correspondent constitutes an outward remittance and is equivalent to a sale of the appropriate foreign currency. Such payments may be made by the Authorised Dealers against approved transactions covered by ‘T-1’, ‘I’ or ‘M’ forms approved by the State Bank or by the Authorised Dealers on behalf of the State Bank as permissible.
5.Transfer to the Debit of Non-Resident Bank Accounts.
Payment in Rupees to the debit of non-resident Rupee accounts of banks’ overseas branches and correspondents constitutes an inward remittance and is equivalent to purchase of the appropriate foreign currency. Such payments may be made freely by the Authorised Dealers.
6.Transfer between the Accounts of Non-Resident Bank Branches or Correspondents.
Transfers between non-resident bank accounts may be freely allowed by the Authorised Dealers irrespective of their monetary area. In respect of such transfers credits should be covered by form ‘M’ in which the name and address of the bank whose account is debited and the name of the Authorised Dealer with whom that account is maintained should be given. The form may be approved by the Authorised Dealer on behalf of the State Bank. No form need to be completed covering debits, details of which should be reported to the State Bank in the manner prescribed in Chapter XXII.
- Credits to Non-Resident Bank Accounts against Foreign Currencies purchased by Authorised Dealers.
Authorised Dealers may freely purchase foreign currencies from banks’ overseas branches and correspondents and credit the Rupee equivalent to their non-resident Rupee accounts.
- Debits to Non-Resident Bank Accounts against Currencies sold by Authorised Dealers.Prior approval of the State Bank would be required for the sale of foreign currencies to non-resident bank branches and correspondents against credit balance available in their non-resident Rupee account.
- Non-Resident Accounts of Exchange Companies.Non-resident Exchange Companies may, in addition to opening a foreign currency account under F.E. Circular No. 25 of 1998, open non-resident rupee account for the purpose of effecting payment of remittances made by overseas Pakistanis. Such accounts will be fed by sale of foreign currency by the account holder. Authorised Dealers are permitted to enter into drawing arrangements with the exchange companies subject to the condition that they will obtain guarantee of a reputable bank equivalent to one month’s aggregate rupee drawings, and the replenishment from the exchange companies should be called within 4 to 5 days of the drawings.
PRIVATE NON-RESIDENT RUPEE ACCOUNTS
(i) Accounts of individuals, firms or companies resident in countries outside Pakistan are designated as non-resident accounts. Also under the State Bank’s Notification No.FE1/63-SB dated the 14th October, 1963 issued in pursuance of Section 20(I) (a) of the Act, all nationals of Pakistan and persons domiciled in Pakistan except persons holding office in the service of Pakistan, who go out of Pakistan for any purpose viz., employment, study, business tour, pleasure trip etc., are treated as non-resident for the purpose of Section 5 of the Act, for so long as they remain outside Pakistan. Accordingly their accounts are also treated as non-resident accounts. All such accounts are regarded for the purpose of Foreign Exchange regulations as accounts of countries in which the account holder is residing.
(ii) Non-resident accounts can, therefore, be grouped in the following categories:
(a) Non-resident accounts of Pakistan nationals permanently residing and domiciled abroad.
(b) Non-resident accounts of Pakistan nationals who are abroad for short visits.
(c) Non-resident accounts of foreign nationals residing abroad.
(d) Non-resident accounts of foreign nationals ordinarily resident in Pakistan but gone abroad for short visits.
(iii) Authorised Dealers should mark the accounts of all non-resident persons, firms or companies in their books as non-resident accounts and also indicate clearly the country of their residence. All non-resident accounts should be maintained in a separate ledger. Similarly new non-resident accounts, as also those designated as non-resident accounts consequent upon the account holders being out of Pakistan, will be maintained in the Non-resident Accounts ledger. As and when non-resident accounts are re-designated as resident accounts, the same should be taken out of the Non-resident Accounts ledger. iv) Non-resident accounts of the categories mentioned in sub-para (ii) shall be treated as resident on account holder’s permanent return or his temporary visit to Pakistan for which permission of the State Bank is not necessary and there shall be no restriction on the account holders’ operating these accounts so long as such account holders are resident in Pakistan.
(v) Where any doubt exists whether any account is to be treated as non-resident, an immediate reference should be made to the State Bank for a decision giving full particulars.
(vi) Authorised Dealers may transfer amounts to and from such accounts only in accordance with the regulations laid down in this chapter.
2.Accounts of United Nations and its Organizations.
In terms of Section 5 of Article-II of the Schedule appended to the United Nations (Privileges and Immunities) Act, 1948 the accounts of United Nations and its organizations are free from financial controls. Authorised Dealers should, therefore, treat such accounts maintained with them as “Resident Accounts”.
3.Joint Accounts of Residents and Non-Residents.
There is no bar on non-residents maintaining accounts jointly with residents. These accounts should be treated as non-resident accounts irrespective of the fact whether the accounts are to be operated solely or jointly by the residents.
- Opening of New Non-Resident Accounts of Persons other than Banks.
New non-resident accounts in the names of persons or firms or companies other than banks may be opened without the prior approval of the State Bank where accounts are to be opened with funds received from abroad through banking channel or with Rupee funds which have been accepted by the State Bank for remittance abroad. Reference of the Monthly Exchange Returns or the State Bank approval number, as the case may be, should be quoted in the relevant form A-7 covering the credit.
- Accounts of Foreign Nationals Resident in Pakistan – Form “Q.A.22”.
The accounts of all foreign nationals who are resident in Pakistan and the accounts of companies or firms (other than banks) whose head offices or controlling interests are outside Pakistan but the accounts are operated on by persons in Pakistan may be treated as resident accounts. The account holders or persons in Pakistan authorised to operate on such accounts must sign form “Q.A.22” (Appendix V-6). Form “Q.A.22” should be obtained by the Authorised Dealers in duplicate and a copy thereof forwarded to the State Bank for record as and when the account is opened. Prior approval of the State Bank for opening such accounts is not necessary. However, in cases where such accounts are desired to be opened with a bank which is not an Authorised Dealer, prior approval of the State Bank will be necessary. Form “Q.A.22” is an undertaking that the signatory will not provide any foreign currency against reimbursement in Rupees and that any transaction on the account not directly connected with the signatory’s business in Pakistan will be reported to the State Bank on form A-7. Declaration on form “Q.A.22” should not be taken from members of foreign embassies, legations, consulates and accredited representatives of foreign governments in Pakistan.
- Form “Q.A.22” not required from Non-Residents.
In the case of non-resident accounts, declaration on form “Q.A.22” is not necessary.
- Responsibility of Authorised Dealers regarding irregular Operations on Accounts.
Notwithstanding the fact that a constituent has signed form “Q.A.22” the Authorised Dealer must take all reasonable steps to ensure that the constituent is not making foreign exchange available to any person in Pakistan other than an Authorised Dealer against reimbursement in Rupees or is not by any other means contravening the provisions of the Act. It shall be the responsibility of the Authorised Dealers to bring to the notice of the State Bank immediately any such irregularities detected by them.
- Operations on Non-Resident Accounts of Persons, Firms and Companies other than Banks.
(i) Unless it is prescribed otherwise by the State Bank in respect of any particular Rupee non-resident account of persons, firms and companies other than banks, all operations on such accounts shall be governed by the rules set out below. Authorised Dealers may, therefore, raise debits and afford credits to non-resident accounts accordingly. The applicants will be required to fill in Form A-7 (Appendix V-7) in respect of these transactions:
- aa) Payments on account of the account holder direct to the institutions concerned in respect of insurance premium, club bills or other payments of a regular nature provided the payments are supported by bills and vouchers.
- bb) Government and Municipal dues provided payments are supported by official claims and payments are made direct to the Government or Municipal agencies.
- cc) Debits on account of disbursements in Pakistan limited to the extent of the funds received from abroad through banking channel.
- dd) Debits representing payments through cheques direct to the carriers or the travel agents for travel within the country by rail or air for self, wife, children and parents and for travel abroad as approved in Chapter XVII.
- ee) Debits on account of purchase of shares of public limited companies and/or securities of the Government of Pakistan, NIT Units, Prize Bonds, Defence Savings Certificates etc., provided such shares/securities etc., are purchased by the Authorised Dealers themselves on behalf of the account holder on the basis of non-repatriation of capital, dividend/interest etc., and registered at their Pakistan address and also retained by the Authorised Dealers in their custody on behalf of their constituent concerned so long as he resides outside Pakistan. Sale proceeds of such investments and dividends/interest etc., accruing thereon should be credited to the non-resident account only.
- ff) Payments against bills for hotel expenses in Pakistan of the family members of the account holder provided payment is being made direct to the hotel by cheque. The concession is restricted to hotels of the category of three stars and above only.
- gg) Cheques drawn in favour of his dependents resident in Pakistan for maintenance.
- hh) Debits in reversal of previous credits.
- ii) Debits in respect of approved remittances in foreign exchange.
- jj) Payment of installments of loans direct to the financial institution from whom the account holder had obtained loan.
- aa) Receipts on account of salary, allowances, bonus, commission etc., directly from the employers by cheque.
- bb) Dividend and interest income on investment in shares and securities directly from the company by cheque.
- cc) Income from landed property and agricultural rent against identity of the depositor.
- dd) Credits of remittances received from abroad through banking channel.
- ee) Interest accrued on the amount lying in the non-resident account.
- ff) Amounts representing the maturity proceeds/surrender/paid up value of insurance policies and proceeds of the shares of the public limited companies and/or securities of Government of Pakistan purchased under sub para (a)(ee).
- gg) Refund of amounts previously debited or over-charged.
- hh) Sale proceeds of landed property as evidenced from the registered sale deed.
All other debits and credits require prior approval of the State Bank.
(ii) While allowing operations on non-resident accounts in accordance with the above instructions, the Authorised Dealers must satisfy themselves that the credits/debits to the non-resident accounts fall under any one of the exempted categories and are in fact meant for the purpose declared by the applicant. Authorised Dealers should take all possible precautions to ensure that the above relaxation is not misused in any manner for evasion of any of the provisions of the Act. It will be the responsibility of the Authorised Dealers to ensure that payments from non-resident accounts are allowed only in respect of genuine obligations in Pakistan of the account holders while deposits represent genuine Rupee receipts accruing to the account holders which are not intended to set off payments effected abroad. Similarly while opening new non-resident accounts, Authorised Dealers will ensure that the Rupee funds with which the account is proposed to be opened, represent receipts from abroad through banking channel or represent Rupee funds which have been accepted by the State Bank for remittance abroad. In cases of slightest doubt a reference should be made to the State Bank for advice. If transactions passing through a non-resident account are subsequently found to have been used for compensatory deals, the Authorised Dealer maintaining the account will be held responsible therefore.
- Disposal of Forms A-7.
Forms A-7 in support of the transactions on non-resident accounts shall be sent to the State Bank along with Schedule ‘K’ prescribed in paragraph 7 of Chapter XXII of this Manual.
- Responsibility for submitting Form A-7 – Credits to Private Non-resident Accounts.
In the case of credits to a non-resident account, except when otherwise prescribed, the receiving banker, i.e. the bank which credits a non-resident account in its books is responsible for ensuring that form A-7 has been completed or State Bank’s approval obtained where required, before crediting funds to private non-resident accounts. In order that no difficulties arise on this score, the following procedure is suggested for adoption by all banks. A cheque or draft etc., received for the credit of a non-resident account of a company, firm or person should be sent by the receiving bank to the paying bank, stating that a non-resident account is being credited and requesting in exchange a pay slip accompanied by forms A-7 duly completed by the drawer or by the paying bank on his behalf and where necessary, approved by the State Bank.
11.Responsibility for submitting Form A-7–Debits to Non-resident Accounts.
In the case of debits to non-resident accounts cheques should be returned by the paying banker with the remarks ‘Non-resident account, Form A-7 required’. The collecting bank will then arrange with the customer, for whom the payment is drawn, to submit Form A-7 to the paying banker.
- Powers of the State Bank to block Non-Resident Accounts.
Section 6 of the Act confers powers on the State Bank to block accounts in Pakistan of any person resident outside Pakistan and to direct that payment of any sums due to a non-resident may be made only to such a blocked account.
- Definition of Blocked Account.
A blocked account means an account opened as a blocked account at any branch or office in Pakistan of a bank authorised in this behalf by the State Bank or an account blocked by the order of the State Bank.
- Banks authorized to maintain Blocked Accounts.
All Authorised Dealers in foreign exchange are permitted to maintain blocked accounts subject to the conditions laid down in this chapter. In certain cases, banks other than Authorised Dealers in foreign exchange may be authorised by the State Bank to maintain blocked accounts.
4.Opening of Blocked Accounts.
A blocked account may not be opened in the name of a resident of Pakistan unless it is held jointly with a non-resident. No blocked account may be opened by an Authorised Dealer or an existing ‘free’ account blocked except under directions from the State Bank.
- Payment to Blocked Account deemed as a good Discharge.
Sub-section (1) (b) of Section 6 of the Act provides that where the State Bank has directed that any payment due to a non-resident may be made to a blocked account in his name with a bank in Pakistan, the crediting of the sum to the blocked account shall, to the extent of the sum credited, be a good discharge to the person making the payment.
- Items payable to Blocked Accounts.
The State Bank may not approve certain remittances in settlement of liabilities to non-residents under the current Foreign Exchange regulations. Payments in discharge of such liabilities to non-residents can only be allowed to be made to blocked accounts. Amounts due to a Pakistani who has emigrated to another country and all amounts due to a resident of India will be allowed to be paid only into a blocked account of the beneficiary.
- Procedure regarding Payment to Blocked Accounts.
Where State Bank directs that a payment be made to a blocked account only, it may be made either:
(i) by a banker’s payment order marked ‘payable to blocked account of ____________________only’ or
(ii) by a crossed cheque or warrant drawn in favour of the beneficiary and marked with the words “Payable to blocked account of payee only.” Where such a cheque or warrant is sent to a non-resident, it is desirable that the payee should arrange for the opening of a blocked account with an Authorised Dealer before forwarding the cheque to that bank for collection. ‘Form A-7’ with the name of the payee as the transferee and clearly marked ‘Blocked Account’ must be submitted to the State Bank for prior approval. The collecting bank must endorse cheques, warrants or drafts so marked “received for the credit of blocked account at ………………………… (Bank and Branch)” before presenting them for payment. The paying bank may not pay such instruments, unless they are properly marked and unless Form A-7 has been approved by the State Bank for payment to a blocked account. After payment has been made it must endorse the form on the back “Payment made to blocked account at ………………………… (Bank and Branch)”. The amount which the State Bank has directed to be placed to a blocked account, must be immobilised pending the opening of the account and may not be used for any other purpose except with the prior approval of the State Bank.
- Pakistani Emigrants-Blocking of Accounts.
Bank accounts and securities belonging to Pakistan and foreign nationals residing permanently in Pakistan, who emigrate to foreign countries, should be treated as blocked. For blocking the accounts and securities of intending emigrants the State Bank will issue necessary instructions to their bankers. Some times Pakistan nationals who had gone abroad for purposes other than ‘Migration’, take up permanent residence in a foreign country. As and when such cases of their clients come to the knowledge of Authorised Dealers, it will be their responsibility to report them to the State Bank for instructions as to whether or not the bank account/securities of the person concerned should be blocked. In such cases pending receipt of instructions from the State Bank, the securities should be immobilised and no operation on the bank account should be allowed without its prior approval.
- Operations on Blocked Account.
The State Bank may issue special instructions regarding operations on individual blocked accounts. In the absence of any such special instructions, no payments into or withdrawal from blocked accounts may be made unless prior approval of the State Bank has been obtained.
- Use of Blocked Balances.
Balances held in blocked accounts may be invested in “approved securities” expressed to be payable in Rupees or in fixed deposit with the bank in which the account is held subject to the prior approval of the State Bank. Shares or securities in which investment is permitted by the State Bank must be bought through the bank with whom the blocked account is kept and registered in the name of the account holder, the address being his permanent residential address outside Pakistan. Alternatively, securities so purchased may be registered in the names of the banks keeping the blocked accounts or their nominees in Pakistan. The securities should not be held in bearer form and should not be sold or transferred without the permission of the State Bank.
INWARD AND OUTWARD REMITTANCES
- Inward Remittances.
The term ‘inward remittance” means purchase of foreign currencies in whatever form and includes not only remittances by M.T., T.T., draft etc., but also purchase of travellers cheques, drafts under travellers letters of credit, bills of exchange, currency notes and coins etc. Debit to banks’ non-resident Rupee accounts also constitutes an inward remittance. This chapter, however, does not cover purchase of foreign currency notes and coins which is dealt with in Chapter XI.
2.Inward Remittance – No Restrictions.
There is no restriction on receipt of remittances from abroad either in foreign currency or by debit to non-resident Rupee accounts of banks’ overseas branches or correspondents. Authorised Dealers may freely purchase T.Ts, M.Ts, drafts, bills etc., expressed and payable in foreign currencies or drawn in Rupees on banks’ non-resident Rupee accounts. There is also no objection to their obtaining reimbursement in foreign currency from their overseas branches and correspondents in respect of Rupee bills and drafts which are purchased by them under letters of credit opened by non-resident banks or under other arrangements.
The term “outward remittance” means sale of foreign exchange in any form and includes not only remittances by T.Ts, M.Ts, drafts etc., but also sale of travellers cheques, travellers letters of credit, foreign currency notes and coins etc. Outward remittance can be made either by sale of foreign exchange or by credit to non-resident Rupee account of banks’ overseas branches or correspondents. Authorised Dealers may sell foreign exchange for approved transactions only in accordance with the procedure outlined in this chapter. This chapter does not cover sale of foreign currency notes and coins which is dealt with in Chapter XI.
- Mode of Remittances.
Authorised Dealers should normally avoid issuing drafts in cover of outward remittances whenever remittance can be made by T.Ts, or M.Ts, etc. Where, however, the normal means of transfer is likely to result in unnecessary hardship or inconvenience to the remitter, drafts may be issued in the name of the beneficiaries of the remittance but such drafts should be crossed by the issuing bank as “Account Payee only”.
5.Prescribed Application Forms.
(i) There are three types of application forms for outward remittances:
(a) Form ‘I’ is to cover remittance against imports (Appendix V-30 )
(b) Form ‘T-1’ is to cover sale of exchange for travel (Appendix V-64)
(c) Form ‘M’ is to cover all other remittances (Appendix V-8)
(ii) Any person who wishes to purchase foreign exchange must lodge an application with an Authorised Dealer on the appropriate prescribed form duly supported by the requisite documents. On receipt, the application should be examined by the Authorised Dealer and if the Authorised Dealer is satisfied that the application is covered by the regulations and it is empowered to approve the remittance on behalf of the State Bank, it may effect the sale of foreign exchange. If the transaction requires prior approval of the State Bank, the application should be forwarded by the Authorised Dealer to the State Bank for consideration with comments under its stamp and signature.
- Applications by Letters.
In some cases, applications are made by letters as it becomes difficult for the applicants to fully describe on the prescribed application form the purpose of purchase of foreign exchange particularly for travel abroad and for purposes other than import. In all such cases, letters should be accompanied by Form ‘T-1’ or ‘M’ as the case may be, duly filled in. If the remittance is permissible, the State Bank will return the form duly approved. In cases where remittance is required to be made in installments at periodical intervals, the State Bank may issue special permits authorising remittances in the desired manner.
- Applications to be submitted to the State Bank only through an Authorised Dealer.
All applications for foreign exchange should be forwarded to the State Bank through Authorised Dealers who should arrange their delivery to the State Bank through their own messengers or through post. All applicants who present their applications directly to the State Bank will be asked to resubmit them through an Authorised Dealer.
- Forwarding Applications to the State Bank.
When submitting applications to the State Bank, Authorised Dealers should take all reasonable precautions to satisfy themselves as to the bonafides of the applicants. They should verify that the application form has been duly completed and signed by the applicant and then affix their stamp and signature thereon in token of their having examined the application and of having satisfied themselves that to the best of their knowledge and belief, the statements made in the form are correct and that full documentary evidence as required has been submitted. In this connection, reference is also invited to para 6 of Chapter 1. The applicant should also be advised that under Section 22 of the Act, it is an offence to give any information or make any statement which he knows or has reasonable cause to believe to be false or not true in any material particular.
- Processing of Approved Form etc.
After receipt of approved forms or permits etc., from the State Bank, Authorised Dealers should see that the forms etc., have been approved by the authorised officers of the State Bank and that they bear its embossing seal. Authorisations which are signed by officers whose specimen signatures are not available with the Authorised Dealer, should be presented to the nearest office of the State Bank for authentication. It is also important that once a form has been approved by or on behalf of the State Bank, the Authorised Dealer should effect remittance only on behalf of the original applicant for whom the form has been approved and in favour of the beneficiary whose name appears in the approval. They must in no case accept instructions from third parties. In those cases where Authorised Dealers are empowered under the instructions laid down in this Manual to approve applications on behalf of the State Bank, they should ensure while approving the form that the applications are complete in all respects and that all the necessary documentary or other evidence as required has been submitted to and examined by them and that they have satisfied themselves as to the genuinness of the transaction.
- Permits for Recurring Remittances.
(i) Permits (Appendix V-9) issued by the State Bank are of three types. In the first type of permits, the State Bank authorises remittances upto a stated amount within a stated period which an Authorised Dealer may make on behalf of the permit holder. Remittances under such permits may be made during the period of validity of the permit in amounts as required by the applicant provided that the total of such remittances under the permit does not exceed the overall limit laid down in the permit.
(ii) The second type of permits covers remittances on a periodical (monthly) basis but the periodical (monthly) limits are not cumulative and remittances in all during any one period (month) must not exceed the prescribed rate laid down in the permit. If remittances are not made upto the full extent of the limit in any period (month), it is not permissible to carry forward unutilised balance in order to make larger remittances in subsequent periods.
(iii) The third type of permits allows remittances on a periodical (monthly) basis but the periodical (monthly) amount is sanctioned on a cumulative basis so that unutilised amounts for earlier periods (months) can be remitted in subsequent periods (months). Unutilised amounts may, however, be accumulated only within the validity of the permit and the entire unutilised balance of such permits will lapse after the last day of the validity of the permit. In such cases it is not permissible to make remittances in advance of the entitlements of the subsequent periods (months).
(iv) Requests for utilisation of lapsed quotas should be forwarded by Authorised Dealers to the State Bank giving full reasons for non-utilisation on due dates supported by suitable documentary evidence, wherever available.
- Effecting Remittances against Permits.
In all cases where permits are issued by the State Bank, it will be in order for the Authorised Dealers to effect remittances against the permits subject to report on form ‘M’. Authorised Dealers must state on form ‘M’ the number of the permit against which the remittance has been made and also certify that the remittance has been endorsed on the permit. The remittance must be endorsed on the reverse of the permit giving the amount and date of remittance under their stamp and signature. When the permit is exhausted, it should be returned to the State Bank by the Authorised Dealers alongwith the form ‘M’ on which the last remittance is reported. In all cases where the purpose for which the permit was granted ceases to exist and no further remittances are required or are permissible, the unutilised permit should be returned to the State Bank with an advice that the permit should be cancelled.
- Period of validity of approval by the State Bank.
All Authorisations given by the State Bank are valid for a period not exceeding 30 days from the date of approval unless they are expressly approved as valid for a specified longer period or unless they have been revalidated for a further period. Similarly, permits issued by the State Bank are also valid for specified periods as stated on the permit. Authorised Dealers should not effect any remittance against approved forms, permits etc., which have been lapsed unless they have been duly revalidated.
13.Release of Foreign Exchange for Travel Abroad.
Foreign exchange is issued to the travellers against specific or general approval given by the State Bank. It may be drawn in any foreign currency equivalent to the sanctioned amount exclusively in the forms specified in paragraph 44 of Chapter XVII. In cases where a traveller desires to draw foreign exchange partly in foreign currency instruments and partly in foreign currency notes, Authorised Dealers will prepare two separate ‘T-1’ forms. In the portion meant for their certificate, the Authorised Dealers will give on both the ‘T-1’ forms a suitable indication as to the amounts of foreign exchange released in foreign currency instruments and notes. The ‘T-1’ forms will be attached with Schedules E-3 annexed to Summary Statements S-1 and S-6. In the case of sale of foreign exchange partly in foreign currency instruments and partly in foreign currency notes against specific approval issued by the State Bank, a photocopy of the State Bank’s sanction will also be made. Authorised Dealers will give a suitable indication to this effect, both on the original sanction as well as its photocopy which will be attached with the relative ‘T-1’ forms and surrendered to the State Bank alongwith the monthly returns of foreign exchange transactions.
- Processing of Approvals given on one Authorised Dealer’s Form by another Authorised Dealer.
There may be instances where a traveller or a remitter might approach an Authorised Dealer for issue/remittance of foreign exchange against approved form ‘T-1’ or ‘M’ bearing the identifying prefix and serial number of another Authorised Dealer. While releasing/remitting foreign exchange against such form ‘T-1’ or ‘M’, Authorised Dealers should insert their own identifying prefix and serial number borne on one of the blank ‘T-1’ or ‘M’ forms in their possession, and score out the prefix and serial number already appearing on approved form ‘T-1’ or ‘M’ under proper authentication. The Authorised Dealers should, however, destroy that blank form ‘T-1’ or ‘M’ whose serial number is so inserted by them.
- Reporting of Remittances.
Authorised Dealers should submit to the State Bank alongwith the appropriate returns as laid down in Chapter XXII, forms ‘M’, ‘T’-1 and ‘I’ as the case may be, in cover of each remittance effected by them. Where remittances are approved by the State Bank, the approved forms should be submitted in original. Where approval is given by the State Bank by letter or through issue of permit, particulars of the letter or of the permit should be given on the appropriate form before submitting it to the State Bank with the returns.
- Cancellation of Outward Remittances.
In the event of any outward remittance which has already been reported to the State Bank being subsequently cancelled, either in full or in part, Authorised Dealers must report the cancellation of the outward remittance as an inward remittance. The return in which the reversal of the transaction is reported should be supported by a letter giving the following particulars:
(a) The date of the return in which the outward remittance was reported.
(b) The name and address of the applicant.
(c) The amount of the sale as effected originally.
(d) The amount cancelled.
(e) Reasons for cancellation.
- Cancellation of Inward Remittances.
In the event of any inward remittance which has already been reported to the State Bank, being subsequently cancelled either in full or in part, because of non-availability of the beneficiary, Authorised Dealers must report the cancellation of the inward remittance as an outward remittance on form ‘M’. The return in which the reversal of the transaction is reported should be supported by a letter giving the following particulars:
(a) The date of the return in which the inward remittance was reported.
(b) The name and address of the beneficiary.
(c) The amount of the purchase as effected originally.
(d) The amount cancelled.
(e) Reasons for cancellation.
- Utilisation of Exchange for the purpose it is obtained.
Where any foreign exchange is acquired by any person other than an Authorised Dealer for any particular purpose or where any person has been permitted conditionally to acquire foreign exchange, the said person will not use the foreign exchange so acquired otherwise than for that purpose or fail to comply with the prescribed conditions. In cases where the foreign exchange so acquired cannot be used in full or in part for the purpose for which it was acquired or any of the conditions subject to which the foreign exchange was released cannot be complied with, the foreign exchange should immediately be surrendered to an Authorised Dealer.
DEALINGS IN FOREIGN CURRENCY NOTES AND COIN ETC
- Authorised Dealers and Money Changers.
(i) Authorised Dealer’s licence to deal in foreign exchange includes an authority to deal in foreign currency notes and coins as well. This chapter sets out the regulations, which govern the purchase and sale of foreign currency notes and coins.
(ii) Besides Authorised Dealers, the State Bank has granted Authorised Money Changer’s Licences to Pakistan nationals and resident Pakistani firms/companies to purchase and sell foreign currency notes and coins. They are required to follow the code of conduct prescribed for them vide Chapter II.
- Purchase from the Public.
All incoming passengers, whether Pakistani or foreign can bring with them without any limit foreign currency notes, coins and other instruments which should be freely purchased by the Authorised Dealers against payment in Rupees. In all cases Authorised Dealers should issue a certificate of encashment in the prescribed form (Appendix V-10) and if so desired by the travellers, the purchase should be endorsed on the traveller’s passport. In cases where the foreign currency offered for sale by a traveller had been originally obtained from an Authorised Dealer, the repurchase should be endorsed on the traveller’s passport in the case of Pakistan nationals only.
- Purchase from other Authorised Dealers and Money Changers.
Authorised Dealers may also purchase foreign currency notes, coins and other instruments freely from other Authorised Dealers and Money Changers.
- Non-convertible Currency Notes.
Many countries have restrictions on import of their own currency notes and do not also allow their repatriation through banking system. Surplus collection of such foreign currency notes can be disposed of in the international centres at market rates. Authorised Dealers should arrange with their overseas branches or correspondents to keep them fully informed of such restrictions on import and repatriation as also about demonetisation, currency re-organization etc., in foreign countries. Such information may also be passed on by the Authorised Dealers to those Authorised Money Changers who are their customers. Authorised Dealers should regulate the sale of foreign currency notes etc., to travellers keeping in view the restrictions of the respective countries so that they are not put to any loss or inconvenience on arrival in the foreign country concerned.
- Authorised Dealers’ requirements of Foreign Currency Notes.
Authorised Dealers may replenish their stocks of foreign currency notes for meeting the requirements of their customers either by purchasing them from other Authorised Dealers or by importing them from their overseas branches and correspondents.
- Sale to Public.
Authorised Dealers may sell foreign currency notes and coins to persons proceeding abroad within the amount of foreign exchange sanctioned by the State Bank or released by the Authorised Dealers under the authority delegated to them in Chapter XVII subject to compliance of the provision of paragraph 44 of that chapter.
7.Sale to other Authorised Dealers.
Authorised Dealers may freely sell foreign currency notes and coins to other Authorised Dealers.
8.Disposal of Surplus Notes.
When Authorised Dealers are unable to dispose of their holdings of foreign currency notes by sale to the public or other Authorised Dealers, they may dispatch such surpluses to their agents or correspondents abroad for crediting their value to their foreign currency accounts.
The Government of Pakistan have, by their Notification Nos.I(6)-ECS/48 and I(7)ECS/48 both dated the 1st July, 1948 issued in pursuance of Section 12 of the Act, prohibited the export by post and otherwise than by post, of any goods either directly or indirectly, to any place outside Pakistan, unless a declaration is furnished by the exporter to the Collector of Customs or to such other person as the State Bank may specify in this behalf that foreign exchange representing the full export value of the goods has been or will be disposed of in a manner and within a period specified by the State Bank. This chapter deals with the regulations governing exports from Pakistan.
2.Exports exempted from foreign Exchange Regulations.
The prohibition mentioned above does not apply to exports to Afghanistan, exports to Iran by land route under special arrangement and to the export of:
- i) Bonafide trade samples of articles exported as such by an exporter registered under the Registration (Importers and Exporters) Order, 1993 as amended from time to time, or who has been exempted from registration thereunder provided the FOB value of samples supplied free of charge does not exceed the limit notified by the Ministry of Commerce from time to time. Leather garment manufacturers are entitled to export 50 (fifty) samples in a calendar year irrespective of monetary ceiling.
- ii) personal effects whether accompanied or unaccompanied of travellers,
iii) ship stores and transshipment cargo,
- iv) goods shipped under the orders of the Government of Pakistan or of such officers as may be appointed by the Government of Pakistan in this behalf or of the Military, Naval or Air Force authorities in Pakistan for Military, Naval or Air Force requirements. In the case of export by post, a certificate signed by a Gazetted Officer or by any person entitled to use service postage stamps should be pasted on the outer cover of the parcel to the above effect,
- v) gift parcels where they are accompanied by a declaration by the sender that the contents of the parcel are of a value not exceeding the ceiling notified by the Ministry of Commerce for gift parcels and that the dispatch of the parcel does not involve any transaction in foreign exchange, and
- vi) where the packet is covered by a certificate issued by the State Bank to the effect that the export of the parcel does not involve any transaction in foreign exchange.
Customs authorities will not allow exports without declaration on the export forms except in the cases listed above.
3.Export Control Regulations.
Exchange policies regarding exports cover all goods exported from Pakistan irrespective of whether they are subject to licence under the Export Trade Control Regulations or not. Similarly, nothing in the Exchange policies relieves the exporters from the necessity of complying with the Export Trade Control Regulations as laid down by the Government from time to time, including the necessity of obtaining an export licence wherever necessary. The Government of Pakistan has under the Export Trade Control Regulations banned exports to Israel.
4.Registration of Exporters.
Under the Registration (Importers and Exporters) Order, 1993, as amended from time to time, no person can export any goods from Pakistan unless he is duly registered as an exporter with the Export Promotion Bureau. Authorised Dealers should, therefore, ensure before certifying any export form ‘E’ as required in para 8 ibid that the person is so registered. The registration number should be quoted on the relative export forms.
5.Forms Prescribed for declaring Exports.
As required under the Federal Government Notification Nos.I(6)-ECS/48 and I(7)ECS/48 both dated the 1st July, 1948 the exporters are required to declare their exports to the Customs/Postal authorities in form ‘E’ (Appendix V-11).
- Method and period of Payment.
- (i) Full export value of goods exported from Pakistan and declared to the Custom authorities should be received in an approved manner, as embodied in State Bank’s Notification No. F.E. 3/2001-SB dated the 28th September, 2001 on the due date for payment or within six months from the date of shipment/posting, whichever is earlier, or within a period as may be prescribed by the State Bank through specific or general instruction, through an Authorised Dealer either in convertible foreign currency in which the Authorized Dealer maintains accounts or in U.S. Dollar or in Pakistan rupee from a non-resident bank account. However, where the terms of sale/irrevocable letter of credit provide for payment on 180 days’ usance/270 days’ usance in the case of Hand Knotted Carpets, from the date of shipment/posting, it shall be permissible for the exporter to repatriate the export proceeds within 195/285 days from the date of shipment/posting. Similarly, in the case of exports to South American countries Authorised Dealers may certify Form ‘E’ if the letter of credit provides for payment on 270 days sight/usance from the date of shipment and the export proceeds may be repatriated within 285 days from the date of shipment. Prior approval of the State Bank should be obtained before arranging for payment in any manner other than that indicated above.
- (ii) As an exception to the above, payment for goods exported to countries other than those with which Pakistan has special payment arrangements e.g. Asian Clearing Union member countries etc., may also be accepted from foreign currency accounts maintained with banks in Pakistan including an account maintained by the exporter himself. The transaction shall be reported first on Schedule E-4 as payment to the account holder and simultaneously on Schedule A-1/A-2 as purchase on account of export proceeds.
- (iii) Where the terms of sale provide for payment earlier than six months, Authorised Dealers may allow extension in the realisation period if they are satisfied with the explanation given for delay in realisation, provided such extension does not extend the period beyond six months from the date of shipment.
- 7.Retention period of Export Proceeds.
- It is permissible for exporters to retain the export proceeds including ‘Advance Payments’ in foreign currency with an Authorised Dealer in Pakistan for three working days and to sell the same within this period to any Authorised Dealer. The foreign currency so retained shall be kept by the Authorised Dealers in ‘ Special Exporters’ Account’ outside their ‘Exposure’ limits.
8.Certification of Export Forms by Authorised Dealers.
- i) Before the export forms are lodged by the exporters with the Customs/Postal authorities all the copies thereof are required to be certified as under by the Authorised Dealers:-
- a) Certified that the above exporter(s) is/are known to us, that he/they is/are bonafide businessman/businessmen in Pakistan and that he/they has/have made arrangements with us for the realisation of the export proceeds, of the goods declared on this form on the due date for payment or within six months from the date of shipment/posting, whichever is earlier, in accordance with the State Bank’s Notification No. FE. 3/2001-SB dated the 28th September, 2001 and that we are satisfied with said arrangements. We have also satisfied ourselves about the bonafides of the importers/consignees abroad and their credentials etc.
- b) We undertake to ensure that export proceeds against shipment on firm contract shall be received by us on the due date for payment or within six months from the date of shipment/posting, whichever is earlier, in accordance with the State Bank’s Notification No. FE 3/2001-SB dated the 28th September, 2001. In the event of non-compliance due to reasons beyond our control we shall furnish to the State Bank of Pakistan a full explanation as to the reasons and circumstances resulting in our inability to comply.
- c) We undertake that in the event of non-realisation of export proceeds against shipment on consignment sale within the stipulated period of six months, we shall obtain from the exporter(s) and furnish to the State Bank of Pakistan a full explanation as to the circumstances resulting in non-realisation. We further undertake that in the event of short realisation, we shall obtain from the exporter(s) and furnish to the State Bank of Pakistan a fully documented account sale certified by the consignees/Chamber of Commerce of the country of import.
- ii) Authorised Dealers shall not certify any export form unless they have satisfied themselves with regard to the following:
- (a) Arrangements have been made for realisation of export proceeds of the goods covered by the relative export forms.
- (b) Bonafides of the importers/consignees abroad and their credentials have been verified. Wherever necessary they should make discreet enquiries through their foreign correspondents. In case of shipments against T.R. (Trust Receipts) or D.A. (Documents against Acceptance) greater care should be exercised by the Authorised Dealers in certifying the relative export forms. Where Authorised Dealers doubt the bonafides or standing of the importers/consignees or where they suspect collusion with the intent to evade or delay repatriation of full export proceeds, they should report such cases promptly to the State Bank.
- (c) Arrangements have been made for receipt of documents of title to goods like Railway Receipt, Bill of Lading, Airway Bill and Truck Receipt.
- (d) Genuineness of the charter party where shipment is to be made against a charter party Bill of Lading has been verified. Discreet enquiries should be made about the carrier and the importers as indicated in sub-paragraph (b) above to safeguard against any loss of cargo or foreign exchange in such cases.
- (e) The export form has been signed by the exporter or his authorised agent. The signatory should disclose his status/capacity in the concerned firm/company etc., i.e. Director/Partner/Proprietor/Manager etc. In case the form is signed by the agent of the exporter, it should be ensured by the Authorised Dealers that he holds a valid legal power of attorney from the exporter & the terms of the power of attorney are such that the exporter as well as the attorney can be held responsible severally and jointly for the repatriation of the export proceeds to Pakistan.
- (f) Letter of credit for export to Asian Clearing Union member country has been received under the ACU Arrangement, unless the export is covered by a loan/credit extended to the importing country by International Agencies like IBRD/Asian Development Bank etc., in which case letters of credit will be established envisaging payment in convertible currencies outside the Asian Clearing Union Arrangement.
- (g) In the case of re-export of imported goods, the conditions laid down by the Ministry of Commerce through the existing export policy have been complied with.
- 9. Export by Country Craft, Motor Launch or Truck.
- Authorised Dealers can also advise letters of credit or confirm arrangements and certify export forms for exports by means of country-craft or motor-launch or truck subject to normal procedure followed in case of exports.
10.(i) Printing and Distribution of Export Forms.
Head/Principal Offices of Authorised Dealers are required to maintain a complete record of all export forms printed by them and of their distribution to their branches and customers. For this purpose, they should maintain a Stock Register which should show branch-wise distribution of the export forms. It is the responsibility of the Head/Principal Offices to keep their branches adequately stocked with the export forms.
(ii) Maintenance of Party-wise Record of Certified Export Forms.
Authorised Dealers should maintain another register for recording therein the particulars of export forms issued and certified by them in respect of each exporter. In this register they should record against each form the date of submission of the export documents in cases where shipments have been made, or of the surrender of complete set of export forms in cases where goods have not at all been entered for shipment or of submission of complete “shut-out notice” in cases where the goods have been entered for shipment but have been shut-out. Against each export form, the Authorised Dealers should also indicate the date of realisation of the export proceeds wherever the documents are negotiated or collected through them. In cases where none of the above documents are received by them within the period of 21 days from the date of certification on the relative export forms, the Authorised Dealers should immediately get in touch with the exporter concerned to ascertain whether or not the shipment has been effected. If the Authorised Dealer is satisfied that the exporter has not yet been able to ship the goods against the certified export form, it should make a suitable notation against the entry in the register of the relevant certified export form and follow it up till the documents referred to above are submitted to it. All other cases where the exporters do not respond to the notices of the Authorised Dealers should be reported to the State Bank on monthly basis in the prescribed form (Appendix V-12).
- Making out and Delivery of Shipping Documents.
In exercise of the powers vested in it under Section 20(3) of the Act, all carriers whether common or private (railway, steamship, motor trucking or airline companies) and their agents have been directed by the State Bank as under:
(i) (a) In respect of export of goods from Pakistan to foreign countries by land route or by sea, the Railway Receipts, Bills of Lading, Truck Receipts or any other documents of title to cargo should be drawn only to the order of an Authorised Dealer designated for the purpose by the exporter. This restriction will not apply if the exporter produces a certificate to the carrier from the Authorised Dealer concerned in the prescribed form (Appendix V-13). The certificate will be issued by the Authorised Dealer only if the shipment is being made against an advance payment or against an irrevocable Letter of Credit which calls for drawing of documents of title to cargo to the order of the opening bank, or the importer, or the exporter or to order and blank endorsed. In all cases the railway receipt, bill of lading and other documents of title to cargo should be delivered by the carriers to the authorised representative of the Authorised Dealer concerned holding authority letter for collecting these documents.
(b) A Seaway bill may be accepted by the Authorised Dealers if the export is being made against receipt of advance payment or against an irrevocable letter of credit opened/confirmed by a reputable bank abroad, envisaging payment on the basis of seaway bill.
(ii) In respect of export of goods to foreign countries by air, the airway bills and any other documents of title to cargo should be drawn to the order of a bank in the country of import nominated by the Authorised Dealer designated for this purpose by the exporter. However, in the case of export of goods against advance payment or against irrevocable letter of credit which contains a condition that the airway bill and other documents should be drawn to the order of the importer abroad, the airway bill and other documents of title to cargo may be drawn to the order of the importer abroad, provided the exporter produces to the carriers a certificate to this effect from the Authorised Dealer concerned in the prescribed form (Appendix V-13). In all cases the airway bill and other documents of title to cargo will be delivered by the carriers to the authorised representative of the Authorised Dealer concerned holding authority letter for collecting these documents.
(iii) The directions contained in sub-paragraphs (i) and (ii) do not apply to the following cases:
- (a) Bonafide trade samples provided the F.O.B. value of each consignment supplied free of charge does not exceed the limit prescribed by the Ministry of Commerce.
- (b) Personal effects, whether accompanied or unaccompanied, of travellers.
- (c) Ship stores and transshipment cargo.
- (d) Goods shipped under the orders of Federal Government or of such officers as may be appointed by the Federal Government in this behalf or by Military, Naval or Air Force authorities in Pakistan for Military, Naval or Air Force requirements.
- (e) Exports covered by exemption certificates issued by the State Bank.
- (f) Exports of fresh fish, vegetables, fruits, poultry and other goods of perishable nature.
- (iv) In case where irrevocable Letter of Credit contains a condition that documents shall accompany a certificate from the beneficiary stating that one original (1/3rd or 2/3rd) Bill of Lading or Airway bill has been dispatched to the buyer/consignee, Authorised Dealers may allow dispatch of original 1/3rd or 2/3rd Bill of Lading or Airway Bill to the party named in the letter of credit only after the documents have been presented for negotiation under the letter of credit.
12.Export of Software.
- i) The following procedure will be adopted for the export of computer software and realisation of the proceeds of such exports:
- (a) The Software houses/companies will get themselves registered with the concerned area office of the Exchange Policy Department.
- (b) Whenever an exporter concludes an agreement for the export of software, he will submit a copy of the same to the area office for information.
- (c) Each exporter will submit a monthly statement of his exports/earnings in the prescribed form (Appendix V-14) alongwith the Export Proceeds Realisation Certificates issued by the Authorised Dealer through which the value of exported software is repatriated to Pakistan.
- ii) It is permissible for exporters of software to retain amounts upto 35% of their export earnings in Special Exporters Foreign Currency accounts opened with the Authorised Dealers exclusively for payment of commission/discount to the overseas agents/buyers and to use the same to meet other expenses such as promotional publicity, import of Hardware/Software, foreign consultant’s fee etc.
- Exports to Afghanistan.
As stated in paragraph 2 ibid, exports to Afghanistan are not required to be declared on form ‘E’. In the case of any foreign exchange becoming due to an exporter against such exports, he is required to repatriate the same to Pakistan and sell it to an Authorised Dealer against payment in Pakistan currency. Exports to the Central Asian Republics via Afghanistan by land route would, however, be subject to declaration on form ‘E’.
- Endorsement of Shipping Documents by Authorised Dealers.
The Authorised Dealers to whose order the relative railway receipts, bills of lading etc., are drawn shall endorse the same to the order of their foreign correspondent but in no case shall they make any blank endorsement thereon or endorse them to the order of the consignor unless they have obtained specific or general approval of the State Bank. However, in the case of exports through third country intermediary i.e. under merchanting arrangements, it will be in order for Authorised Dealers to make blank endorsement where advance payment has been received or where documents are negotiated under letters of credit which call for such blank endorsement.
- Functional Utility of the Copies of Form ‘E’.
All exports from Pakistan which are subject to Foreign Exchange regulations are required to be declared on Form ‘E’ which is in sets of four copies each. The exporter should submit the full set of Form ‘E’ to the Authorised Dealer for certification as described in paragraph 8 (i) ibid only after it has been completed and signed by the exporter himself or his authorised agent. While certifying Form ‘E’, Authorised Dealers should ensure that exporters give only one address in Form ‘E’. After the form is certified by the Authorised Dealer, it should be submitted to the Customs/Postal authorities at the time of shipment alongwith the shipping bill. The Customs authorities will detach the original copy and after filling in the portion relating to them and affixing their seal and signature thereon forward it to the State Bank. The Customs authorities will return the duplicate, triplicate and quadruplicate copies to the exporter or his authorised agent who will retain the quadruplicate for his own record and submit the duplicate and triplicate copies to the Authorised Dealer alongwith the shipping documents within 14 days from the date of shipment. The Authorised Dealer will forward the triplicate copies of the export forms to the State Bank alongwith the monthly returns in which realisation of export proceeds is reported, retaining the duplicate for his record. In cases where receipts of export proceeds are reported by an Authorised Dealer in respect of exporters residing in the jurisdiction of an area office of Exchange Policy Department other than that to which the returns are being submitted, separate area-wise schedules A-1/A-2 with one additional copy will be prepared and submitted to the Exchange Policy Department. The name of the area office of Exchange Policy Department to which the schedules pertain will be prominently indicated on top thereof.
- Submission of Export Documents to Authorised Dealers.
All shipping documents covering goods exported from Pakistan and declared on Form ‘E’ must be passed through the medium of an Authorised Dealer within 14 days from the date of shipment. The exporter must submit the duplicate (bearing Customs seal and signature of Customs Officials with Code number) and triplicate copies of Form ‘E’ alongwith the shipping documents, invoices etc., to the Authorised Dealer who had certified the Form ‘E’. An extra copy of the shipper’s invoice must be attached to the triplicate copy of the Form ‘E’. In the event of payment being received through an Authorised Dealer other than the one who had certified the export form, the Authorised Dealer negotiating or collecting the export documents should convey the particulars of the export form to the Authorised Dealer which had originally certified the export form to enable the latter to make a suitable note in the relative register.
17.Scrutiny of Documents.
On receipt of the bill of lading/airway bill/railway receipt etc., alongwith the Form ‘E’ and the export documents, the Authorised Dealers should compare the bills and/or documents with the relative export form and satisfy themselves that they conform in all respects to the declarations made on the relative export forms and the amount of the bills and invoices is not less than the value declared on them. In the case of those commodities which are subject to Export Price Check (EPC) procedure, the invoice should also be compared with the EPC form approved/registered by the relevant authority, to ensure that the quantity, quality, value, destination and terms of sale/payment shown therein agree with those declared on the EPC form, and the quantity and value should be endorsed on the reverse of the EPC form. All such cases where the Authorised Dealers consider that the value declared to the Customs and accepted by them does not represent the true value of the goods should be promptly reported to the State Bank. The Authorised Dealers may, however, accept bills/documents for negotiation/ collection if the difference between the value stated on the relative export form and the amount of the bill/invoice represents legitimate adjustments on account of short weight or actual freight and other items of similar nature. Details of such adjustments must be given on the relative export forms and must be authenticated by the Authorised Dealers under their stamp and signature.
- Exports subject to receipt of Advance Payments or Irrevocable Letters of Credit.
In the case of commodities export of which is permissible only on receipt of advance payment or irrevocable letter of credit, shipments will be allowed by the Customs only on the basis of the certificate of the Authorised Dealer on the export forms to the effect that either advance payment or irrevocable letter of credit has been received covering export of the goods mentioned on the export form.
- Special Requirements for Export of Wool and other Commodities
subject to Grading Scheme.
(i) Under the Wool Grading Scheme of the Government of Pakistan every exporter of wool is required to obtain a test report from the Government Test House for all shipments of wool intended for export whether on firm contract or on account basis. In all such cases the exporter of wool is required to forward to the State Bank through an Authorised Dealer a copy of the test report of the Wool Test House duly initialed by the Customs alongwith the invoice and triplicate copy of the relative export form. In the case of firm sales, the exporters should also mention in the invoice:
(a) the quality of wool,
(b) the rate per pound and
(c) yield basis on which the sale has been made.
Sale of wool on consignment basis is required to be made only by public auction through recognized Auction Houses abroad. Account Sale from these recognized Auction Houses should be forwarded to the State Bank alongwith the relative triplicate copy of the export form.
(ii) The procedure governing other commodities which may, in future, be subjected to Grading Scheme will be notified to Authorised Dealers separately.
20.Part Drawings and Advance Remittances.
(i) If it is customary in any particular trade for exporters to draw bills for only a percentage of the invoice value and to receive the balance after arrival of the goods at destination, Authorised Dealers may negotiate/collect bills in the part amount provided they obtain an undertaking from the exporters that they will realize the balance within the prescribed period. Authorised Dealers should report such part receipts on “Form ‘E’ not attached Voucher” on Schedule ‘A-2’. It is the responsibility of the Authorised Dealers to follow up each such case and to ensure that the balance amount is also realised within the prescribed period. This exemption will not, however, apply in the case of shipments of those goods which are subject to either 100% advance remittance or to the opening of irrevocable letter of credit for the full amount of the export.
(ii) When a part of the invoice value has been received in advance by the shippers, the Authorised Dealers when negotiating/collecting documents for the balance should certify on the triplicate copy of the export form that part of the amount had been received by them in advance quoting reference to the return in which the receipt was reported on an “Advance Payment Voucher” (Chapter XXII).
(iii) In both the above cases the triplicate copy of the export form should be kept outstanding by the Authorised Dealer and submitted to the State Bank only after the full value of the export has been received.
- Short Shipment.
Where a portion of a consignment is short shipped and the exporter consequently draws a bill or prepares an invoice for a quantity less than that declared on the relative export form, he should produce a notice of short shipment on the prescribed form duly certified by the Customs alongwith the shipping documents. In such cases, Authorised Dealers should negotiate/collect the shipping documents on the basis of short shipment notice. The Authorised Dealer will forward the short shipment notice to the State Bank alongwith triplicate copy of ‘E’ form while reporting the realisation of full value of the goods shipped. If the exporter fails to produce the short shipment notice alongwith the export documents, the Authorised Dealer may negotiate/ accept the documents for collection but report full particulars of the case to the State Bank. The Authorised Dealer should, however, continue to follow up the case with the exporter for submission of short shipment notice.
- Shipments Shut-out Entirely.
(i) Where a shipment to be made by a particular vessel is entirely shut-out and reshipped by another vessel, the exporter should apply on the prescribed form in duplicate to the Customs for permission to alter the name of the vessel on the relative export form and the shipping bill.
(ii) Where a shipment is entirely shut-out and is not being reshipped immediately by another vessel, the exporter should give a notice to the Customs in the prescribed form in duplicate. It will be the responsibility of the exporter concerned to produce to the Authorised Dealer who had certified the export form, a copy of the shut-out notice duly certified by the Customs within 21 days from the date of certification of the export form. On receipt of the shut-out notice, the Authorised Dealer should treat the relative export forms as cancelled and forward the shut-out notice to the State Bank.
- Shipment lost or damaged in Transit.
(i) If shipments from Pakistan are lost in transit for which payment has not already been received, the Authorised Dealers must see that an insurance claim is made immediately the loss is known. The triplicate copy of the relative export form should be endorsed with the narration “Shipment Lost” under the stamp and signature of the Authorised Dealer and sent to the State Bank under a separate covering letter giving the following particulars and bearing running serial number:
(a) Name of the insurance company with which goods were insured.
(b) Amount of insurance and its currency.
(c) Place where claim is payable.
(ii) The Authorised Dealer who had certified the export form should pursue the matter with the shipper and ensure that in each case the exporter has received the insurance claim and produces encashment certificate, in cases where claims are paid in foreign currencies and Rupee payment certificate where settlements are made in Rupees. These certificates should be forwarded by the Authorised Dealer to the State Bank giving reference of relative export forms.
- Advance Remittances against Exports.
- i) In case of remittance received in advance for goods to be exported from Pakistan, Authorised Dealers should obtain a certificate in duplicate from the beneficiary on the Advance Payment Voucher (Appendix V-18) declaring the particulars of the intended export, before disbursing the amount to him. Both copies of the Advance Payment Voucher shall be authenticated by the Authorised Dealer. The original shall be surrendered to State Bank with the relative Schedule A-2, while the duplicate shall be returned to the exporter for production at the time of certification of Form ‘E’. The Authorised Dealer which has disbursed the amount, shall ensure that Form ‘E’ is certified for export in accordance with the declaration made on the Advance Payment Voucher within a period of one year of receipt of advance payment and particulars of Form(s) ‘E’ viz. date of certification, value for which ‘E’ Forms certified and progressive un-utilised balance (where more than one Forms ‘E’ are certified) shall be endorsed on the duplicate copy of the Advance Payment Voucher. The triplicate copy of the ‘E’ Form will be surrendered to the State Bank under a covering letter alongwith a photocopy of the Advance Payment Voucher and the invoice.
- ii) In case of payments received for export of fresh fruits/vegetables, it would be in order for the Authorised Dealers to certify ‘E’ Forms against Advance Payment received, even if the detailed particulars of the ‘Goods’, their ‘Quality’ and ‘Invoice Value’ have not been filled in, provided the broad description i.e. ‘Fresh Fruits’, ‘Fresh Vegetables’, or ‘Fresh Fruits/Vegetables’ is declared in the relevant column. While certifying the ‘E’ Form, the following remarks would be added by the Authorised Dealers:-
‘This form has been certified against the outstanding balance of ___________ (Amount) out of the advance payment of __________ (Amount) received on __________ (Date)’.
There is no objection to the use of one ‘E’ form for export of both fresh fruits and vegetables if these goods form a single consignment. At the time of shipment, the exporter will fill in the required particulars in all copies of the ‘E’ Form and submit the duplicate and triplicate copies to the Authorised Dealer alongwith the shipping documents and an invoice. The Authorised Dealer will compare the details of the ‘Goods’, ‘Quantity’ and ‘Invoice Value’ and process the case as indicated in sub-para (i).
- Exports Against Payments Tendered by Buyer in Person.
In case where payment for goods to be exported is made out of foreign exchange (excluding foreign currency notes) brought from abroad by a purchaser on person, the following procedure will be followed:-
- i) The seller (exporter) will arrange the encashment of foreign exchange (excluding foreign currency notes) brought in by the foreign buyer with a bank in Pakistan.
- ii) The Authorised Dealer while encashing foreign exchange will obtain an application in the prescribed form (Appendix V-19) from the foreign buyer and get the ‘Advance Payment Voucher’ completed by the seller
iii) The Rupee proceeds will be credited to the account of the seller, if one is maintained with the encashing bank, or passed on to the bank with whom the seller maintains his account for credit thereto. Thereafter the Authorised Dealer will make out the prescribed certificate (Appendix V- 20).
- iv) While reporting the receipt of foreign exchange as advance payment for export on Schedule A-2, the Authorised Dealer will attach the application and certificate (Appendices V-19 and V-20) with the “Advance Payment Voucher”.
26.Export on D.A./T.R. Basis – Non-Payment by Foreign Buyer.
In case of exports on firm contract on D.A. or T.R. basis, Authorised Dealers, before certifying the export form, should ensure that the foreign buyer is of sound financial standing and enjoys good repute. Doubtful cases should be referred to the State Bank for instructions. Despite aforesaid precaution, if a foreign buyer refuses to accept the goods, the exporter should either make immediate arrangements for shipping the goods back to Pakistan or alternate buyer found with the approval of the State Bank. However, prior approval of the State Bank will not be necessary in cases where the consignment initially refused is taken up finally by the original consignee or an alternate buyer found provided that payment for the consignment is not less than 90% of its original value minus actual demurrage charges, if any. In those cases where the foreign buyers default in making payment after taking delivery of the goods against their acceptance of the bill or T.R., Authorised Dealers shall consider the possibility of initiating legal action against the foreign buyers for recovery of export proceeds in consultation with the State Bank. To this end, Authorised Dealers should make arrangements for obtaining a suitable undertaking from the exporters at the time of certification of the Form ‘E’ for firm sales on D.A. or T.R. basis so that there is no hitch in initiating legal action in those cases where the foreign buyers have defaulted.
27.Verification of Export Proceeds Realisation Certificate.
Sometimes exporters are required to produce to the Government Departments evidence of exports and the realisation of their proceeds. In such cases proceeds realisation certificates may be issued by the Authorised Dealers in the prescribed form (Appendix V-21) after getting them authenticated by the State Bank. The State Bank will authenticate such certificates on the strength of certification made by the Authorised Dealers. The transaction would be post-facto verified by the State Bank with reference to the relative schedule/statement received from the concerned Authorised Dealer. To facilitate checking and verification of these transactions Authorised Dealers should quote the correct reference and the period of their schedule/statement in column 10 of the proforma at Appendix V-21.
- Issue of Duplicate Export Proceeds Realisation Certificate.
In case of loss of original export realisation certificate, the State Bank on application would authorise issuance of duplicate thereof on the basis of undertaking given by the Authorised Dealer in the prescribed form (Appendix V-22). The word “Duplicate” will be prominently marked in indelible ink at the top of such certificates.
29.Payment of Freight in Rupees.
(i) Carrier companies will not accept payment of freight in Rupees on cargo shipped on C&F or CIF basis unless the exporter produces to them a certificate from an Authorised Dealer in the form given below:
“CERTIFIED that ‘E’ form No …………………………in respect of shipment to be made by Messrs (Name of Exporter) ………………………… has been stamped to the effect that the documents in respect of the shipment under this ‘E’ form shall be negotiated/accepted only if these are drawn on C&F or CIF and not on FOB basis”.
(ii) Before issuing the above certificate, Authorised Dealer will invariably endorse the relative ‘E’ form in the following manner:
“Certified that documents in respect of the shipment under this form shall be negotiated/ accepted only when these are drawn on C&F or CIF and not on FOB basis.”
The carrier companies will invariably submit to the Authorised Dealer through whom remittance of surplus freight collection is desired to be made with the freight manifests the aforesaid bank’s certificates alongwith the relative bills of lading which should be arranged according to the entries appearing in the freight manifest.
- Reporting of Overdue Cases.
(i) The State Bank has prescribed the period within which full foreign exchange value of the exports must be realised. Non-realisation or delay in realisation of the export proceeds without the prior permission of the State Bank constitutes an offence and renders the exporters liable to action under the Act.
(ii) To enable the State Bank to review the position of all outstanding export bills, the Head/Principal Offices of Authorised Dealers will furnish to the State Bank every month the following statements:
(a) Statement showing the total figures of all export bills outstanding (including partly unrealised) relating to all their branches, at the end of each month in the prescribed form (Appendix V-15).
(b) Statement in the prescribed form (Appendix V-16) containing particulars of those export bills which have become overdue during the month under report. This statement will be prepared in respect of Authorised Dealer’s branches according to the area office of the Exchange Policy Department given in para 4 of Chapter 1 and will be submitted in duplicate for each area separately. The outstanding export bills pertaining to each exporter should be listed in a sequence with exporter-wise totals and the grand total given at the end. However, the statement for the month of June each year should show particulars of all overdue export bills as on 30th June.
(c) Statement in Appendix V-17 showing particulars of those cases which were reported by Authorised Dealers as overdue in the previous statements but the items are deleted from their books during the month under report either due to realisation of the proceeds or under instructions from the State Bank.
The above statements in Appendices V-15, V-16 and V-17 should reach the Exchange Policy Department (Central & Statistics Section), State Bank of Pakistan, Central Directorate, Karachi by the 15th of the month following that to which they relate. It will be the responsibility of the Authorised Dealers to see that the above statements are submitted to the State Bank on due dates and that all cases of exports which become overdue are invariably incorporated in these statements and that there is no omission in this regard. The statements in forms V-16 and V-17 will additionally be submitted on floppy diskettes.
- Export of Jewellery, Precious or Semi-precious Stones.
Export of gold jewellery/precious and semi-precious stones will be allowed in accordance with the procedure notified by the Government of Pakistan and the instructions issued by the State Bank from time to time.
- Remittance of Export Commission, Brokerage and Discount.
(i) Authorised Dealers are permitted to allow payment of commission/brokerage/discount due to foreign importers/or agents by exporters in Pakistan at the following rates:
|Maximum rate of
|(a)||Books, journals and magazines.||Upto 33 1/3 %|
|(b)||Engineering goods (Electrical and Non-electrical).||Upto 10 %|
|(c)||Sports goods, surgical instruments, cutlery, leather goods, ready-made garments and other textile made-ups, carpets and plastic manufactures.||Upto 7 %|
|(d)||Cotton.||Upto 2 %|
|(e)||All other goods except cement.||Upto 6%|
Cases not covered by the above instructions should be referred to State Bank with full facts and documentary evidence necessitating the payment of commission at a higher rate.
(ii) Authorised Dealers can allow payment of commission etc., upto the above extent without the prior approval of the State Bank as under after satisfying themselves that the payment is in conformity with the relative agreement between the exporter and the buyer/agent abroad:
(a) By deduction from the invoices where payment is to be made to the foreign buyers themselves. In such cases the net amount realised will only be reported as “Purchase”.
(b) By instructing the negotiating bank abroad that the amount of commission etc., may be paid by them to the agents direct out of the proceeds of the bill. In such cases the Authorised Dealers should report the full export proceeds of the bill as “Purchase” and the amount of commission should be reported as “Sale”.
- (c) By remittances from Pakistan, when the full export proceeds are received within ninety days of the receipt of export proceeds. The Authorised Dealers should report the full export proceeds of the bill as “Purchase” and the amount of commission remitted should be reported as “Sale”.
- Where remittance is not made as provided herein, approval of the State Bank in accordance with the provisions of paragraph 7 of Chapter XIV shall be obtained. It should, however, be noted that in the case of exports under special trading agreements, commission is payable only through the special accounts opened for settlement of related transactions.
(iii) In cases where the exporter is not required to pay commission or where he is required to pay an amount less than the maximum permissible limits, such amounts of commission/ differential not exceeding 6% of the FOB value of goods realised can be retained in foreign currency account with Authorised Dealers in Pakistan. The funds held in such foreign currency accounts can be used by the exporters for promotional publicity, collection of commercial intelligence, purchase of designs/patterns, market studies, bonafide export claims and shortfall in realisation of export proceeds, without any approval from the State Bank. The foreign currency accounts so opened will be fed exclusively with the amount of commission on exports and no other deposits, whatsoever the nature, will be accepted for credit to such foreign currency accounts. This facility is also available where export proceeds are realised under ACU Arrangement.
(iv) ’Physicians’ Free Sample’ may be supplied alongwith consignments of drugs and medicines being exported by the pharmaceutical companies, upto the extent agreed to between exporters and foreign buyers/agents.
- Export of Services.
Exporters of services such as Financial Services, Wholesale Distribution and Retail Trade, Transportation, Storage and Communications, Tele-communication Services, Medical Services, Educational Services, Engineering Services, Real Estate Development, Hotel and Tourism/Tourism Related Services, Technical Testing Facilities and Consultancy Services etc. are authorised to retain 35% of their net foreign exchange earnings in foreign currency accounts with Authorised Dealers in Pakistan. The Authorised Dealers should ensure that such funds are utilized only for payment of commission/discount and for meeting other expenses such as promotional publicity, foreign consultant’s fee etc.
33.A. Retention of a part of incremental export earnings.
Those exporters who post at least 10% growth in their net foreign exchange earnings in terms of US dollar over the last year’s export performance may be allowed by the State Bank to retain 50% of their additional export earnings in their foreign currency account maintained with Authorised Dealers in Pakistan. For claiming this facility, the Exporter/Group will work out on aggregate basis in the context of companies/firms having common Directors/Partners/individual company owned by the single owner having substantial equity, and will prepare a Bank-wise statement in the prescribed form (Appendix V-23 A) showing the performance of previous financial year and current financial year. They are also required to submit a consolidated statement in the prescribed form (Appendix V-23 B) to the Exchange Policy Department alongwith the ‘performance’ in original for issuance of formal permission to the exporter to retain 50% of their additional export earnings in their foreign currency account from their future export earnings in the designated bank. This facility will be available in addition to the one available in terms of paragraph 32 (iii) ibid.
34.Private Commodity Exchange Arrangement With Foreign Parties.
(i) It is permissible for private parties in Pakistan to enter into Commodity Exchange Arrangement (CEA) with foreign parties (including undertakings controlled by foreign governments and public sector agencies but excluding foreign governments). The Ministry of Commerce will prescribe, from time to time, a negative list of commodities which cannot be exported under this scheme.
(ii) Applications for conducting transactions through Private Commodity Exchange Arrangement may be submitted to the Exchange Policy Department (Policy Division, Central Directorate, Karachi) through banks authorised to deal in foreign exchange, for approval alongwith copies of Export/Import Registration Certificates, the past performance showing the value of exports made by the applicant in each year during the preceding three financial years duly certified by their bankers, and the recommendation of the bank whether in view of its past dealings, the party may be given permission to conduct business through private Commodity Exchange Arrangement. Exporters having less than three continuous years export performance would not be eligible. A copy of the agreement entered into between the party in Pakistan and the counter-party in the concerned country abroad will also be required to be submitted. In the case of both exports and imports by the party in Pakistan, the normal laws, regulations, rules governing such export/import will continue to be applicable barring the exemptions granted in this paragraph. The approvals will be given by the State Bank in the format appearing at (Appendix V-23 C)
(iii) The party permitted to undertake business transactions under such arrangement will be exempt from the existing requirement of drawing the documents of title to export cargo to the order of an Authorised Dealer in case of export, and it can also receive the import documents from the counter-party direct. Authorised Dealers shall also be required to certify Form “E” in the modified form as indicated in the Appendix V-23 C. The parties will ensure that imports at least equal to the value of exports are made by them within the period prescribed from time to time for repatriation of export proceeds failing which the value of exports should be repatriated in convertible foreign currency within the prescribed period.
(iv) The party will nominate an Authorised Dealer to maintain proforma account in its name for the purpose of accounting the trade transactions. Separate proforma account will be maintained in respect of each Commodity Exchange Arrangement. The concerned Authorised Dealer will be required to submit a monthly statement in duplicate in the prescribed form (Appendix V- 23 D) in respect of each CEA showing:-
- a) the value of goods exported, alongwith the copies of invoice and duplicate ‘E’ Forms;
- b) the value of goods imported from abroad alongwith copies of the invoices, non-negotiable copies of bills of lading and photocopies of Exchange Control copy of Customs Bills of Entry evidencing import of the goods into the country;
- c) the opening and closing balances.
While forwarding the above statements to the State Bank of Pakistan, the Authorised Dealer will code the items exported/imported.
(v) It is clarified that no forward exchange facility either for export or import transactions shall be admissible. Export under the scheme is not eligible for the purpose of Export Refinance Scheme.
(vi) The withholding tax leviable on the export as per the Notifications issued by the Central Board of Revenue from time to time will be recovered by the Authorised Dealers at the time of passing the entry in the account in respect of exports from Pakistan.
- Internet Merchant Accounts.
In order to promote Business-to-Consumer (B2C) e-Commerce in Pakistan, banks operating in Pakistan can open and operate Internet Merchant Accounts. In this connection the following parameters are to be observed meticulously:-
(a) Merchants desirous of opening an Internet Merchant Account with a bank in Pakistan can open the same either in local currency or in US$ for the purpose and, in addition to observance of normal procedure for opening an account, will be required to submit a copy of their NTN Certificate to the bank.
(b) Merchants must be engaged in a business permissible under laws of Pakistan.
(c) Merchants must have a registered place of business in Pakistan.
(d) Merchants intending to export goods/services must provide a copy of export registration certificate from the Export Promotion Bureau (EPB).
(e) For the present, merchants desirous to undertake transactions outside Pakistan will be required to submit ‘E’ forms for transactions of value less than US$ 500 each to their bank who shall submit the same in consolidated form on monthly basis to SBP. Each ‘E’ form for the aforesaid accounts should specifically indicate the words “E-Commerce” on the upper left corner.
(f) Banks shall recover charges for Internet Merchant Accounts strictly in accordance with Prudential Regulation X. Any clarification with regard to bank c
harges on these accounts may be obtained from the Director, Banking Supervision Department, SBP, CD, Karachi.
(g) The banks shall be responsible for reporting business through the Internet Merchant Accounts to the Exchange Policy Department, State Bank of Pakistan on monthly basis as per proforma appearing at Appendix V-24.
(h) The banks shall be responsible for reporting any suspected transactions against the laws of the country, as per Prudential Regulation XII.
- Scope of Chapter.
This chapter sets out the regulations relating to sale of foreign exchange by the Authorised Dealers against import of goods into Pakistan from any country.
- Import Trade Control.
Import of goods into Pakistan is regulated by the Ministry of Commerce, Government of Pakistan, under the Imports and Exports (Control) Act, 1950 and the notifications issued thereunder. No import is permissible from Israel or from any other country, which may be notified by the Ministry of Commerce. Import of goods originating from any of these countries/ sources is also prohibited. Imports from India are regulated as notified by the Ministry of Commerce, Government of Pakistan from time to time.
- Registration of Importers.
No person can import goods into Pakistan unless he is registered with the Export Promotion Bureau, under the Registration (Importers and Exporters) Order, 1993 or exempted from the provisions of the said Order. Authorised Dealers should, therefore, verify that the importer is registered or otherwise exempted before any letter of credit is opened/contract registered or remittance made on his behalf for imports into Pakistan. Authorised Dealers should ensure that the registration number of the importer is invariably furnished on Form ‘I’. Where the importer has been granted an exemption, a suitable mention of this fact should be made on Form ‘I’.
- Classification of Imports.
Before establishing any letter of credit/registering contracts, Authorised Dealers should take all precautions to ensure that the goods to be imported under it are clearly classifiable under the Import Trade Control Schedules. In all cases of doubt, reference should be made either by the Authorised Dealer or the importer direct to the Export Promotion Bureau. Failure to do so may result in confiscation of goods or imposition of penalty for violating the provisions of the I.T.C. regulations. In all such cases establishment of letter of credit/registration of contract and/or making of remittance will also constitute infringement of the Foreign Exchange regulations.
- Terms of Imports.
Subject to the provisions of this Chapter, imports can be made on FOB basis, CFR liner terms basis or CFR free out basis. However, prior permission of the State Bank shall be obtained for import of sugar and food grains (cereals) on CFR free out basis.
6.Modes of payments for imports.
Payment for imports may be made either through letters of credit, without letters of credit against documents received for collection on the basis of registration of contracts, or as clean remittance without opening of letter of credit and without registration of contract, as described in detail in the subsequent paragraphs.
- Letters of Credit to be opened only against Firm Contracts.
Authorised Dealers should ensure before opening a letter of credit that in each case a firm commitment exists. For this purpose, they should ensure that an invoice, order or indent has been issued by an indentor duly registered as importer under Registration (Importers and Exporters) Order, 1993 and it bears registration number of the indentor concerned. It is also permissible to open a letter of credit on the basis of proforma invoice/order issued/accepted by the foreign supplier. Authorised Dealers should also ensure that while opening letters of credit, full description of the goods to be imported is given in each credit alongwith their prices. In all cases where the amount of the letter of credit is Rs.1,500,000/- or over, Authorised Dealers should obtain a confidential report on the exporter from their branches or correspondents abroad or in their discretion satisfy themselves as to the standing of the shipper by consulting standard books of reference issued by international credit agencies such as Seyds, Dunn and Bradstreet. Such reports should be obtained by the Authorised Dealers themselves and the reports if submitted by the importers should not be accepted. Even in the case of imports of the value of less than Rs.1,500,000/-, it is important that the Authorised Dealers satisfy themselves about the bonafides of the transactions before opening letters of credit.
8.Methods of Payment under Letters of Credit.
(i) Letters of credit may be established providing for payment to beneficiary either in the country of origin of goods or in the country of shipment of goods.
(ii) Authorised Dealers may also establish letters of credit providing for payment to the beneficiary in a third country, not being the country of origin of goods or the country of shipment provided they are satisfied that the payment to the beneficiary in a third country does not involve extra expenditure. This facility is, however, not admissible for the import of goods which are directly shipped from the ACU member countries.
(iii) Authorised Dealers may also establish letters of credit providing for shipment of goods of the origin of more than one country provided the beneficiary remains the same and the shipment does not involve extra expenditure.
(iv) Letters of credit established as per (i), (ii) and (iii) above should provide for payment in any of the following manners:
(a) in any foreign currency.
(b) in Rupees for credit to the non-resident bank account of the country of the beneficiary or of the country of origin/shipment of goods.
(c) Through ACU Clearing Arrangement where letters of credit envisage shipment directly from ACU member countries.
(v) Opening of letters of credit providing for payment in any other manner requires prior approval of the State Bank. Such requests giving full facts of the case alongwith their recommendations should be forwarded by the Authorised Dealers to the State Bank.
(vi) It is not permissible to establish letters of credit providing for alternate countries of origin of goods unless prior approval of the State Bank is obtained. Letters of credit providing for goods of ‘European Union’ origin may, however, be opened.
(i) Authorised Dealers can open letters of credit and extend their validity for a period allowed by the import policy announced by the Ministry of Commerce subject to compliance with all the conditions laid down therein.
(ii) If the import policy does not lay down any instruction in this regard, they may open letters of credit for a period upto 12 months. However, in respect of machinery and mill-work which are required to be specifically manufactured and the period of manufacture is more than 12 months, the letter of credit may be opened for a period upto 24 months. The validity of a letter of credit may be extended by the Authorised Dealers for further periods not exceeding 12 months at a time on payment of fee, if so prescribed in the import policy, provided there has been no change in the Import Policy/exchange regulations in relation to the importability of the goods, the country of origin/shipment, and the method of payment/and if approached within its validity. An expired letter of credit may also be similarly revalidated subject to the same conditions.
(iii) Authorised Dealers are also allowed to amend the letters of credit envisaging change of the beneficiary/goods at the request of the importers provided the importers approach the Authorised Dealers for the change within the validity of the letter of credit and import of the goods covered by the letters of credit are still permissible.
(iv) Authorised Dealers should also ensure to make endorsement of L/C opened for items (other than freely importable items) whose import is subject to certain conditions, in the original Category Pass Book. In case an importer opens letters of credit with more than one bank, the Authorised Dealer holding the original category Pass Book will make out photostat copies thereof, authenticate the same and furnish other concerned Authorised Dealers with it and will keep record thereof.
(v) Authorised Dealers may also make other amendments in the letters of credit without reference to the State Bank provided the amendments are not in conflict with the provisions of this Manual or the Import Trade Control Regulations.
(vi) Letters of credit may provide for negotiation of documents within a period not exceeding 30 days from the date of shipment.
- Terms on which Letters of Credits may be opened.
All letters of credit and similar undertakings covering imports must provide for payment to be made against full set of clean on board (shipped) bills of lading, air consignment notes, railway receipts, post parcel receipts (or in the case of bulk import of books from U.K. against “Statement of Dispatches” in lieu of post parcel receipts) showing dispatch of goods to a place in Pakistan. Sea-way bills should not be accepted. All letters of credit must specify submission of invoices certifying the country of origin in addition to any other certificate prescribed in the import policy.
11.Import of Old Ships for Scrapping.
Letters of credit for import of old ships for scrapping may be opened by the Authorised Dealers in accordance with the normal procedure after scrutiny of the following documents:
(i) Memorandum of agreement or contract of sale; and
(ii) Confidential reports on buyers and sellers.
Authorised Dealers will satisfy themselves that the ship is free from all encumbrances and that the seller has a legal title to the ship.
- Letters of Credit for Shipment by Country Craft, Motor Launch or Truck.
Ordinarily it is not permissible to open letters of credit providing for shipment by means of country craft, motor launch or truck except by public sector agencies or by well established and reputable firms in the private sector, provided in the latter case the Authorised Dealers are satisfied about their financial and business integrity and they have no doubt that the goods covered by such letters of credit will be received in Pakistan.
In the case of other importers in the private sector, letters of credit for import of goods by means of country craft, motor launch or truck may be opened by the Authorised Dealers subject to the following condition:
(i) The supplier abroad furnishes guarantee of a bank in the country of export for an equivalent amount to the effect that should the goods be lost or damaged or pilfered in transit, the above guarantee can be invoked and the amount remitted against the letters of credit recovered.
(ii) Alternatively, the letter of credit provides that payment will be made to the foreign suppliers after the goods have been received and cleared by the Customs in Pakistan.
In respect of importers in the private sector who are unable to fulfill the conditions at (i) and (ii) above, the Authorised Dealers should refer their cases to the State Bank with full particulars.
- Remittances in Excess of the Amount of Letter of Credit.
In cases where the value of documents exceeds the amount of the letter of credit and the foreign correspondent negotiates the documents because of the excess amount being small or sends them on collection basis, Authorised Dealers may allow remittance of the excess amount subject to the condition that the amount does not exceed 5 percent of the amount of credit subject to a maximum of US $500/-. The bill of entry/certified invoice in respect of the consignment will be required to cover the increased amount.
- Types of Letters of Credit not permitted.
It is not permissible to open clean, revolving, transferable or packing credits. Applications for opening such letters of credit should be referred to the State Bank with full particulars.
- Prohibition to open Letters of Credit for Import from Certain Countries.
It is not permissible to open letters of credit for imports into Pakistan in favour of beneficiaries in Israel or of goods originating from that country.
- Imports on the basis of registration of contracts.
The undernoted procedure will be adopted for making imports of goods not subject to authorisation from the Export Promotion Bureau/Ministry of Commerce as also not subject to minimum margin restrictions, if the importer wants to make the import on the basis of registration of contract without opening letter of credit: –
(i) The importer will submit a copy of the contract/purchase order/proforma invoice/indent etc. to the Authorised Dealer for registration.
(ii) The Authorised Dealer registering the contract etc. will issue to the importer, a registration certificate in the format appearing at Appendix V-25.
(iii) In case the documents covering imports are received by the branch of the Authorised Dealer which had registered the contract/purchase order/indent/proforma invoice, directly from the bankers of the suppliers abroad, the remittance may be effected in terms of the instructions laid down in paragraph 23 (i) of this chapter provided the documents conform to the terms of the relative contract/purchase order/indent or proforma invoice.
(iv) In case the shipping documents are received by the importers directly, or by the Authorised Dealer from the overseas supplier instead of the bankers of the suppliers, remittance should be made in accordance with the instructions contained in para 23 (ii) of this chapter.
(v) In case of imports from ACU member countries, remittances will be effected through ACU Clearing Arrangements.
(vi) Forward cover will be available to the importers in accordance with the terms and conditions laid down in Chapter IV of this Manual.
(vii) Authorised Dealers will incorporate the figures of the contracts registered by them/ remittances made thereagainst in the statements as per appendices V-131, V-132 V-133 and V-134 (para 15-Chapter XXII).
- Imports without letter of credit/registration of the indent/proforma invoice/order.
(i) In terms of the import policy, registered importers are permitted to make imports upto specified value ( US$ 5,000/- as per Import Trade and Procedure Order 2000) without opening of letters of credit or registering the indents/proforma invoices or orders with the Authorised Dealers, and make remittances thereagainst. The registered importers are free to make remittances in respect of such imports either in advance or after receipt of the goods in Pakistan. The remittances can be made through demand draft/telegraphic transfer/mail transfer. In such cases where the registered importers make advance payments for such imports, they will be required to furnish to the Authorised Dealer at the time of making a request for remittance, an undertaking to produce invoices and bills of lading/airway bill within a period of four months from the date of advance payment. The Authorised Dealers will pursue the matter with the importers and report those cases to the area office of the Exchange Policy Department where the requisite documents are not produced within the prescribed time limit. In cases where remittances are made after receipt of goods in Pakistan, the registered importers can approach the Authorised Dealers for remittance on the basis of invoices and original bills of lading or airway bill. The Authorised Dealers have general permission to make advance payments or arrange remittances against the prescribed documents on receipt of goods in Pakistan.
(ii) At the request of industrial establishments registered as importers, Authorised Dealers may issue foreign currency demand draft upto the value prescribed in the Import Policy (currently US$ 15,000 per fiscal year for 2000-2001) for import of spare parts/machinery, without opening of letter of credit, provided such import is made by air or by courier. Authorised Dealers will maintain a record of all such drafts issued by them. They will obtain from the applicant a declaration showing the amount already remitted by him during the current fiscal year and issue demand draft only upto the extent of the balance entitlement. They will also obtain Exchange Control copy of Bill of Entry and evidence to the effect that the import was made by air/courier. These records will be retained till the next inspection of the concerned bank branch by the State Bank’s Inspectors.
- Import on Usance Basis.
Authorised Dealers may open letters of credit or register contracts for imports into Pakistan providing for payment on usance basis subject to the condition that such letters of credit/contracts do not stipulate payment of any amount by way of interest separately. The usance should commence from the date of issue of Bill of Lading/Air Way Bill etc. or the acceptance of Bill of Exchange by the drawees as the case may be. The letters of credit opened on usance basis cannot subsequently be converted on sight basis. Similarly the terms of the contracts covering payments on usance basis registered by the Authorised Dealers cannot subsequently be changed to sight basis. It is not permissible to effect payments of usance bills prematurely.
- Imports by public sector agencies to which special allocation is made by the Government.
Public Sector agencies like WAPDA, Karachi Electric Supply Corporation Limited, Pakistan State Oil Co. Ltd., OGDC, etc. which are allocated foreign exchange for their import requirement or the private parties who are allowed to import on Defence/Railway’s account shall make applications to the area Exchange Policy offices of State Bank of Pakistan for permission to get the contracts registered with the Authorised Dealer/open letters of credit, on Appendix V- 26. Authorised Dealers will register contract/open letter of credit in these cases on the basis of clearance issued by State Bank on Appendix V- 26.
- Remittance of bank charges in respect of imports.
Authorised Dealers can make remittance of the following bank charges on account of imports. The particulars of the charges should be specifically mentioned on the relevant forms.
(i) L.C. Advising Commission.
(ii) L.C. Amendment Commission.
(iii) L.C. Confirmation Commission.
(iv) Negotiation Commission.
(v) Un-utilized letter of credit Commission.
(vi) Payment Commission.
(vii) Reimbursement Commission.
(viii) Collection Commission.
(ix) Acceptance Commission (Usance Drafts).
(x) Postage and Cable Charges.
Remittances of bank charges other than the items mentioned above in respect of imports will be subject to the prior approval of the State Bank.
- Remittance of Proceeds of Dishonored Bills.
In those cases where the original drawee dishonors the bill and the foreign shipper or his local agent finds another buyer, the Authorised Dealers may make remittance not exceeding the value of such bills without the prior permission of the State Bank if there are no restrictions in the import policy issued by Ministry of Commerce.
- Remittance involving Violation of I.T.C. Regulations.
Authorised Dealers may allow remittance of the value of imports made in contravention of the import policy if the Federal Government has condoned the contravention and the Customs have released the goods. Such remittance may be allowed on submission of the invoice, bill of lading and Exchange Control copy of Customs Bill of Entry.
23.General Authority for Remittances against Imports.
(i) Authorised Dealers may approve, on behalf of the State Bank, applications for remittance against imports into Pakistan provided the documents covering imports, whether under letters of credit or otherwise, are received through them and the conditions set out in this chapter are complied with. The relative Form ‘I’ should be certified accordingly when reporting the sale to the State Bank. In the case of imports by post, Authorised Dealers may make remittances without the prior approval of the State Bank, only if the post parcels are addressed directly to them. In cases, where the parcels are addressed direct to the individuals or care of the Authorised Dealers, applications should be forwarded to the State Bank for prior approval. Authorised Dealers should invariably attach a copy of the relative invoice with the original or quadruplicate ‘I’ Form, as the case may be, submitted by them to the State Bank with their monthly return of sale in terms of para 33 of this chapter.
(ii) Where the shipping documents are received by the importers directly, or by the Authorised Dealer from the overseas supplier instead of the bankers of the suppliers, remittance should be approved only after the goods have been cleared from the Customs and the Exchange Control copy of Bill of Entry or Customs certified invoices in the case of imports by post, relative invoices, Non-negotiable copies of the Bill of Lading/Airway Bill/Railway Receipt/Truck Receipt etc. and ‘I’ Form duly completed and signed have been submitted.
24.Collection of Freight on Imports on F.O.B. basis in the Private Sector.
The following procedure will be followed for imports on FOB basis in the private sector:
(i) The importers desiring to make imports on FOB basis will get the letters of credit opened/contracts for imports on consignment basis registered through/with their bankers provided the importers fulfill other instructions issued by the Government of Pakistan/State Bank of Pakistan with respect to imports.
(ii) The shipping lines/airlines will obviously issue Bills of Lading/Airways Bills in connection with FOB imports on “Freight to Collect” basis. As and when freight is required to be paid in Pakistan rupees, the importers will approach the Authorised Dealers who had opened letter of credit/registered the contract for import on consignment basis alongwith a copy of Bill of Lading/Airway Bill indicating the amount of freight payable together with the freight invoice issued by the carrier, where available, for issuance of a certificate in the format appearing at Appendix V-27 which will bear the name/address of the issuing Authorised Dealer and a running serial number.
(iii) The importers will then pay the freight amount to the carriers in Pakistan rupees and will also surrender the “certificate” referred to in the preceding sub-para to the concerned carrier.
(iv) Airlines/shipping companies and their agents will not accept freight on FOB imports without Authorised Dealers’ certificate mentioned in sub-para (ii) above. The airlines/shipping companies will invariably attach the said “certificate” (Appendix V-27) in original alongwith the applications to be made for allowing remittance of surplus freight collections.
- Collection of Freight on F.O.B. Imports by the Public Sector.
In the case of imports by the public sector on FOB basis the carriers should not accept freight in Rupees without the approval of the State Bank. Approval will be given by the State Bank after charging the full amount of the freight to the foreign exchange allocation of the respective Government/Semi-Government agency. While applying for approval, the carrier company will produce with the application a letter in the prescribed form (Appendix V-28) from the concerned Department/Agency authorising the State Bank to debit its foreign exchange allocation with the freight amount. As an exception, it will be in order for the carriers to accept freight in Rupees on account of F.O.B. imports by the Ministry of Defence only subject to post-facto approval. Application for permission to pay freight in Rupees in respect of imports by the Ministry of Defence will be made by the Controller of Military/Naval/Air Force Accounts in triplicate in the above proforma. Approval will be accorded by the State Bank on the original copy of the application with the following narration.
“Payment of freight in Rupees as indicated above allowed”.
While the triplicate copy of the application will be retained by the State Bank, the original and duplicate will be returned to the Controller of Military/Naval/Air Force Accounts. The latter will furnish the original copy to the carrier concerned.
- Shipment of Public Sector cargo through PNSC vessels/PIA.
As an exception to the provision of paragraph 25 ibid it will be in order for the PNSC and PIA to accept freight in Pak Rupees on FOB imports by the Public Sector agencies (Ministries/Departments, autonomous and semi-autonomous public sector organizations) provided the goods are carried by them on freight to pay basis. PIA will, however, accept cargo only for the sectors covered by it. Authorised Dealer’s Certificate mentioned in Para 24 (ii) will not be required to be produced to PNSC/PIA by the importing agencies.
- Payment of Freight on Import of Trade Samples.
Airlines/shipping companies can accept freight in Rupees upto Rs. 2,000/- per year per registered importer for import of bonafide trade samples. While accepting freight the airlines/shipping companies should obtain a certificate from the registered importer to the effect that the total amount of freight already paid including the amount to be paid during the calendar year on account of trade samples received by him, does not exceed the limit of Rs. 2,000/- The certificate should be submitted by the airlines/shipping companies alongwith their application for remittance in which the collection of such freight is included.
- Imports on Private Account.
Certain categories of imports are exempted from the Import Trade Control Regulations. For example, in transit imports, imports by diplomatic officials in Pakistan, imports in bond, imports of gift parcels upto the exempted limit and imports by private parties for their personal use upto prescribed limits. Authorised Dealers should not allow any remittance against such imports except as laid down in Chapter XVI.
- Imports by PICIC/NDLC under Foreign Currency Lines of Credit.
(i) PICIC/NDLC can open letters of credit under the foreign currency lines of credit contracted by them with the approval of the Government of Pakistan, and the foreign currency loans contracted by the Government of Pakistan and placed at their disposal for on-lending to their customers.
(ii) In all the cases of imports against letters of credit issued by PICIC/NDLC, it should be ensured that import is made on C&F basis unless shipment is made on Pak flag vessels and in that case letters of credit may provide for imports on FOB basis on payment of freight in Pakistan rupees.
- Advance Remittances.
(i) State Bank may consider applications for advance remittance against imports where the goods are of a specialized or capital nature. Applications for such advance remittance should be made to the State Bank on Form ‘I’ and should be accompanied by the original contract (with a spare copy) entered into between the importer and the foreign manufacturer or supplier. The applications should also be supported by an undertaking in the prescribed form (Appendix V-29) duly countersigned by the Authorised Dealer. In special cases advance remittance may be allowed upto 33 1/3% of the estimated C & F value of the total quantity of the goods to be imported.
(ii) In the case of import of books and subscription to journals and magazines etc., by Government and Semi-Government agencies, Authorised Dealers may allow direct advance remittance upto the amount of the relative letter of credit/contract. In the case of subscription to magazines/journals etc., there will be no Customs Bill of Entry/certified invoice. In such cases, Authorised Dealers will attach the relative debit note with the duplicate of Form ‘I’ giving on both a suitable remark indicating that the remittance has been allowed in advance. As regards import of books, there will be usual Customs Bill of Entry/certified invoice which will be processed in the normal course.
(iii) Authorised Dealers may allow advance remittances for import of books, journals and magazines etc., by commercial importers upto the amount of relative proforma invoices. Since magazines and journals are imported in bulk by the commercial importers in their own names, there will be usual Bills of Entry/certified invoices as in the case of import of books.
- Use of foreign exchange acquired for Imports.
In all cases of remittances against import into Pakistan, the importers shall not use the foreign exchange so acquired other than for that purpose.
- Processing of Form ‘I’.
Applications for remittance against imports into Pakistan should be made on Form ‘I’ (Appendix V-30) which should be signed by the importer or his authorised agent. The signatory should disclose his status/capacity in the concerned firm/company etc., i.e. Director/Partner/Proprietor/Manager etc. In case the form is signed by the agent of the importer, it should be ensured by the Authorised Dealers that he holds a valid legal power of attorney from the importer and the terms of the power of attorney are such that the importer as well as the attorney can be held responsible jointly & severally under the Foreign Exchange Regulation Act, 1947. The form should be submitted to an Authorised Dealer who must sign the certificate as provided therein under his stamp and signature. In cases where the Authorised Dealers are empowered to approve remittances on behalf of the State Bank, they will do so by recording their approval on the form. In all other cases, the forms together with the required supporting documents should be forwarded to the State Bank for approval.
- Functional Utility of the various copies of Form ‘I’.
Form ‘I’ consists of four copies. The original copy of the form duly signed by the importer is required to be sent to the State Bank by the Authorised Dealers with their monthly return of sales. In cases where the importers do not retire the documents and the Authorised Dealers fail to get the original copies of the form signed by them, they should themselves sign the quadruplicate copy of the form and send it with the monthly return to the State Bank. All cases where the importers fail or refuse to sign the Form ‘I’ should be specifically reported to the State Bank.
- Indication on Form ‘I’ for Government Import.
In the case of remittances against imports by Government Departments or in cover of imports by private parties which are marked “ON GOVERNMENT ACCOUNT”, Authorised Dealers should mark Forms ‘I’ with a bold letter ‘G’ to indicate that the remittance is on Government account.
- Loss of Goods.
In the event of total or partial loss of goods, it will be the responsibility of the importers to recover claim from insurance company/shipping company/supplier, as the case may be.
36.Designation of Authorised Dealers for imports under Special Arrangements.
(i) The State Bank designates Authorised Dealers for handling imports under Foreign Loans/credits and barter agreements including PL-480 programme. Letters of credit for import under these arrangements are required to be established through the designated Authorised Dealers only. Importers are, however, free to approach the designated banks either directly or through their bankers.
(ii) In the case of US AID Loans, PL-480 and KFW (German) Loans, the State Bank designates banks in U.S.A. and West Germany also for claiming payment or reimbursement from the loan/aid giving agencies. Similar designation of banks in the country of other aid giving agencies may also be made, if necessary, under the aid/loan arrangements.
37.Rates of Commission to be charged by Banks.
(i) Authorised Dealers may recover from the importers following charges:-
(a) Bank charges specified in and remittable under the provisions of para 20 of this chapter and the amount of interest, where authorised under loans like US AID Loans and others, payable to the foreign banks handling the transactions at the other end. The amounts of bank charges and interest as mentioned above may be remitted to the foreign banks without the prior approval of the State Bank subject to report on Form ‘M’.
(b) Their own commission at rates allowed by the Banking Supervision Department from time to time, if applicable.
In respect of imports under Aids/Loans/Credits/Barters where the business is handled through Authorised Dealers who are not designated banks, the commission will be shared equally between the designated bank and the bank handling the business on behalf of its customers.
(ii) Authorised Dealers may recover commission at the following rates on letters of credit covering imports by the Government routed through State Bank:
(a) In respect of cash/reimbursable loans/barters expressed in U.S. Dollar or any other foreign currency including L/Cs under A.C.U. arrangement:
- aa) 1/8 % if the value of the letter of credit is less than Rs.250,000/-
- bb) 1/16 % if the value of the letter of credit is Rs 250,000/- or more.
(b) In respect of non-reimbursable credits and Rupee Barters: 3/8 % irrespective of the value of the letter of credit.
The above charges are inclusive of foreign correspondents charges. However, in addition to the above, Authorised Dealers may recover actual cable/telex charges where L/Cs are desired to be established through cable/telex and confirmation charges of foreign bank if foreign bank’s confirmation is also to be added on opener’s request.
- Special Features of various Aid, Loans and Credits.
(i) U.S. AID LOANS: After the signing of the loan agreement, U.S. AID, Washington issues letters of commitment which indicate the salient features of the loan as also the names of designated Pakistani and American banks. U.S. AID loans stipulate minimum monetary limits for the opening of each letter of credit as well as the value of each shipment. They may, however, issue one letter of commitment under each U. S. AID Loan. Goods are required to be shipped on U.S./Pakistan flag vessels in accordance with the shipping requirements laid down in respect of each loan. U.S. Liner Services are available on some ports from where shipments can be made only on U.S. flag vessels. In cases U.S. flag vessels are not available on these ports, shipments can be made on Pakistan flag vessels or on the vessels of any other country which is included in the AID Geographic Code 941 after obtaining waiver from the U.S. AID. From ports where U.S. Liner Services are not available, shipments can be made on Pakistan flag vessels or vessels of other countries included in AID Geographic Code No.941. Two percent or ten percent of the freight amount under U.S. AID Loans on ‘Free-Out’ and ‘Non-Free-Out’ basis respectively, which is not financed by AID authorities, is paid from Pakistan’s own resources.
(ii) PL-480 PROGRAMME: Major food items like wheat, soyabean oil, tobacco and non-fat dry milk are imported under Public Law 480. Banks are not designated for import of wheat which is directly handled by the Ministry of Food. For the remaining items, banks in Pakistan and the U.S.A. are designated for handling imports. Payment to the suppliers is made directly by the Commodity Credit Corporation (C.C.C.) of U.S.A. for which Procurement Authorisation (P.A) is issued. Shipments are required to be made on Pakistan and U.S. flag vessels on 50:50 basis. In the event of non-availability of U.S./Pakistan flag vessels, shipments can be made on vessels of any other country at the discretion of Commodity Credit Corporation. In case of shipments by Pakistan flag vessels, Pakistani Shipping Companies can accept payment of freight in Rupees without approval of the State Bank. In case of shipment on U.S. flag vessels, permission of the State Bank for opening of freight letter of credit/making remittance of freight is required in each individual case.
(iii) I.D.A. CREDITS: Imports under I.D.A. Credits can be made from member countries of I.B.R.D. (International Bank for Reconstruction and Development) and Switzerland. Shipment is also required to be made on the vessels of member countries of I.B.R.D. and Switzerland. There are different case procedures for payments under I.D.A. Credits.
(iv) OTHER LOANS AND CREDITS: In respect of loans and credits other than those mentioned above, which are provided by various countries, specific instructions are issued by the State Bank from time to time for handling imports and claiming reimbursements thereunder.
(v) ACU CLEARING ARRANGEMENT: ACU Clearing Arrangement provides a clearing system through which all eligible payments for current international transactions among the member countries, other than payment relating to travel, are compulsorily settled through the ACU mechanism which allows payment in the AMU or the currency of the participating country in which one party to the transaction resides. However, there is no bar to any contract or letter of credit or invoice being denominated in Non-ACU Currency, provided such contract/letter of credit invariably contains a clause to the effect that payment of equivalent amount in ACU Currency/AMU shall be made through the Clearing Arrangement and also specifies the manner in which the currency of the contract/letter of credit will be converted into the currency of actual payment/AMU. Payments for exports to member countries against letters of credit established under loans/credits taken by the importing country from the international financial institutions like World Bank, Asian Development Bank etc., can be realised in convertible currency outside the Clearing Arrangement.
- Foreign Currency Loans and Credits Negotiated by the Government of Pakistan.
Foreign currency loans and credits negotiated by the Government of Pakistan with the international institutions and other agencies are utilised for import of machinery, capital goods, technical know-how, commodities etc. Such credits negotiated for import of machinery, capital goods etc., are normally placed at the disposal of public sector agencies (who use it by opening letters of credit through the banks designated by State Bank of Pakistan or by arranging direct disbursement by the lending agency) and the Development Finance Institutions e.g. PICIC, NDLC and IDBP who in turn disburse them to their constituents. The credits for import of commodities, raw materials, spares etc., are normally disbursed through banks designated by the State Bank against the allocations made by the Economic Affairs Division, Government of Pakistan. Any other foreign currency credits negotiated privately would require approval of the Federal Government/State Bank.
40.Project Loans and Credits.
In respect of imports under Project loans, banks are also designated. Normally, Authorised Dealers are advised to deliver shipping documents to the importing agencies free of payment.
- Reimbursable Loans and Credits.
In case of reimbursable loans and credits, imports are financed in the first instance from Pakistan’s own foreign exchange resources and reimbursement is obtained from the loan giving agency. In some cases imports are also financed from Pakistan’s cash foreign exchange resources pending signing of the relevant loan agreement. As and when the loan agreement is signed, reimbursement is to be sought expeditiously from the relevant Loan/Credit giving agency. The procedures for obtaining reimbursement from the loan giving agencies are worked out on loan to loan basis.
- Deposit of Counter-Part Rupee Funds with the State Bank in respect
of Foreign Non-Project Commodity Loans.
The designated Authorised Dealers will observe the following procedure for deposit of counter-part Rupee funds:
(i) Appropriate Rupee amounts in respect of imports under all foreign non-project commodity loans and credits on non-reimbursable basis will be deposited with the regional office/branch of the State Bank within three working days of the receipt of documents by the designated banks in Pakistan or within 10 days from the date of negotiation by the bank abroad, whichever happens to be earlier, at the rate of exchange prevailing on the date of lodgement of documents in cases where no forward exchange is booked. Where forward cover has been booked, the booked rate is applied for the purpose of depositing Rupee funds.
(ii) The designated Authorised Dealers will submit, to the concerned area Chief Manager of the State Bank, a statement of Rupee deposits at the time such deposits are made against foreign non-project commodity loans and credits in the prescribed form (Appendix V-31). Copies of these statements will also be sent to various Government agencies.
43.Fine on delay in deposit of Counterpart Funds.
In the event of delay in depositing counterpart funds with the State Bank within the prescribed period, the concerned Authorised Dealer will pay to the State Bank fine at the rate of Rs 4 per day per Rs 10,000 or part thereof for the period of delay.
- Documents received on Collection Basis due to
Discrepancy/Documents drawn on usance basis.
(i) In cases where the overseas negotiating bank does not make payment to the supplier but sends the documents to the bank in Pakistan on collection basis due to discrepancy in the documents, the Authorised Dealers will deposit counterpart funds with the State Bank on retirement of the documents by the importers concerned. The prescribed period for deposit of counterpart funds will be reckoned as from the date of retirement of bill by the importer. If the funds are held back by the Authorised Dealers beyond the prescribed period, fine would be charged as per paragraph 43 ibid.
(ii) In those cases where the negotiating banks make payment to the suppliers under reserve or guarantee due to minor discrepancies in documents, either the documents should be sent back to the negotiating bank or the counterpart funds deposited with the State Bank within a maximum period of one week from the date of the receipt of the documents. In case, however, the designated bank in Pakistan chooses to retain the documents beyond the prescribed period of one week, a statement of all such cases should be sent to the Director of Accounts, Economic Affairs Division, Government of Pakistan, Islamabad and the concerned Chief Manager of the State Bank showing the particulars of shipping documents and indicating names and addresses of the importers, letters of credit numbers and dates, vessel, commodity and foreign currency amount specifying the detailed reasons for not depositing the amount within the prescribed period of one week. The cases in which deposits are made within a week need not be reported.
(iii) The designated Authorised Dealer is required to deposit counterpart funds with the State Bank within the period specified in paragraph 42 ibid. The letters of credit opened by the Authorised Dealers for imports under Aid/Loans and Credits should not, therefore, provide for documents to be drawn on usance basis. Documents with usance clause if received by an Authorised Dealer will not be accepted by the State Bank as sufficient reason for waiver of fine on account of delayed deposit of counterpart funds.
45.Deposit of Funds Received under Reimbursable Loans/Credits.
In case of loans and credits on reimbursable basis, the designated banks are required to deposit funds in the State Bank’s Account with the Federal Reserve Bank, New York or with such other banks as may be specified from time to time. The deposits should be made immediately on reimbursement by the foreign loan/credit giving agencies but not later than the date following that on which reimbursement is received. Late deposits will be subject to payment of fine at rates given in paragraph 43 ibid. The Authorised Dealers designated to open letters of credit for imports under loans and credits should, therefore, make necessary arrangements in advance with their correspondents abroad to effect the transfers within the stipulated period. Late receipt or non-receipt of reimbursement advice by the designated banks in Pakistan would not be accepted as sufficient reason for waiver of fine.
46.Exchange Facilities for Merchanting Business by Pakistan Intermediaries.
(i) Residents of Pakistan and firms and companies functioning in Pakistan are allowed to engage themselves in three way merchanting trade through back-to-back letters of credit providing for payment in convertible currency or advance payments excluding payments under bilateral/multilateral accounts, in respect of the following commodities:
- Crude Oil
COMMERCIAL REMITTANCES (OTHER THAN FOR IMPORTS)
1.Freight and Passage Collections.
- i) Shipping companies/airlines may accept freight and passage money in Rupees only in the under-noted cases without the prior approval of the State Bank:
- a) Exports from Pakistan made on C&F/CIF basis against Form ‘E’ duly certified by Authorised Dealers on their letterheads in terms of para 29 of Chapter XII of the Manual.
- b) Imports into Pakistan on FOB basis:
- aa) Against Authorised Dealer’s certificate on form prescribed at Appendix V–27 in terms of para 24 of Chapter XIII of the Manual.
- bb) Against SBP’s approval for import on FOB basis in public sector in terms of para 25 of Chapter XIII of the Manual.
- cc) Against certificate of registered importers for freight on Import of Trade Sample not exceeding Rs. 2000/- per year in terms of para 27 of Chapter XIII of the Manual.
- c) Freight on personal effects/excess baggage in accordance with the provisions laid down in paras 40(i) & 40(iii) of Chapter XVII of the Manual.
- d) Freight on Export of Trade Sample and gift parcels in accordance with the procedure laid down in para 40 (ii) of Chapter XVII of the Manual.
- e) Passage money in accordance with the instructions laid down in Chapter XVII.
In all other cases prior approval of State Bank should be obtained before collecting freight in Rupees. For this purpose, applications should be made to the State Bank giving the nature of the transactions and the reasons why freight cannot be paid in foreign currency.
- ii) Foreign shipping companies and airlines, whether having an office in Pakistan, or not, are not allowed to open PLS accounts. They can open current accounts for keeping funds received from abroad and the amounts of freight and passage collections, pending remittance to their head offices. Agents of foreign shipping companies and airlines may, however, retain freight/passage collections in PLS accounts held in their own names provided the profits earned in these accounts are not passed on in any manner to their principals.
iii) Cargo Consolidators/Forwarders who are approved members of FIATA and registered with the Board of Investment, Government of Pakistan as such, may accept freight in rupees without the prior approval of the State Bank only in respect of Pakistani exports cargo on C&F/CIF basis as per procedure prescribed in paragraph 29 of Chapter XII of the Manual provided the consignment is being dispatched against Advance Payment or an irrevocable letter of credit which contains a provision for issuance of document of title under Cargo Consolidation System and a certificate to this effect issued by the Authorised Dealer on Appendix V-13 is produced.
2.Reporting of Passage and Freight Earnings.
Foreign airlines/General Sales Agents/Shipping companies/Shipping Agents are required to report each month to the State Bank full particulars of the passages and freight booked by them in Pakistan on form ‘F.P. Airline’/’F.P. Shipping’ in duplicate as per specimen appearing at Appendices V-34 and V-35. The statements should be sent to the State Bank by the end of the month following that to which they pertain. While the Airlines should submit only one form ‘F.P. Airline’ in respect of bookings made by them and their agents, the Shipping Agents should submit separate statement (form F.P. Shipping) for each of their principals whose ships are handled by them during a month. The forms F.P. should be supported by bank encashment certificate in support of Inward remittances received.
- Remittance of Surplus Passage and Freight Collections.
- i) Authorised Dealers may allow remittance of surplus passage and freight collections of those foreign airlines, General Sales Agents, and shipping companies/agents which are keeping their collections with them, on submission of application alongwith the following documents: –
- a) A copy of F.P. Statement (Appendix V-34 for airlines and V-36 for shipping companies).
- b) Import/Export freight manifests.
- c) A copy of each bill of lading/airway bill issued in respect of export on freight pre-paid basis, alongwith Authorised Dealers certificates as stated in paragraph 1.
- d) Passage statement (Appendix V-37) alongwith photocopies of ticket coupons and other documents prescribed in Chapter XVII.
- e) Statement of passage/freight bookings earlier made on credit now realised (Appendices V-38 for airlines and V-39 for shipping).
- f) Disbursement Statements (Appendices V-40/V-41).
- g) Cancellation/refund statement (Appendix V-42).
- h) Statement of outstanding passage/freight bookings on credit (Appendices V-43/ V-44).
- i) Authenticated copy of the charter party if the vessel calling at the ports in Pakistan has been chartered by the principals of the shipping agents in Pakistan.
- j) A copy of manifest of Cargo Consolidators together with relative non-negotiable copies of House Bill of Lading or/House Airway Bill (quoting reference of original Master Bill of Lading or Master Airway Bill issued by them with names of each shippers), “E” form certificates prescribed vide para 29 of Chapter XII of the Manual, encashment certificate where freight is paid in foreign exchange separately and a copy of valid permission letter given by the Board of Investment.
- k) A copy of encashment certificate in respect of inward remittance.
- l) Auditors’ certificate showing payment of income tax, or exemption certificate given by the Revenue authorities.
- m) In the case of agents, a copy of the valid permission letter given by the Board of Investment for acting on behalf of the foreign principal.
- n) An undertaking to repatriate back to Pakistan, the amount found by the State Bank, on post-facto checking, to have been remitted in excess of the entitlement.
- ii) Authorised Dealers will allow remittance of surplus passage and freight collections plus inward remittance, to the extent of amounts of passage and freight actually realised less disbursements, refunds, and income tax paid/payable. No remittance is to be allowed in excess of the balance available in the account, as it is not permissible to make remittances out of borrowed funds.
iii) Authorised Dealers will retain all the documents mentioned in sub paragraph (i) alongwith a photocopy of Form ‘M’ submitted by shipping companies/shipping agents for on sight inspection by the Banking Inspection Department. In the case of airlines or their G.S.As, the documents will be submitted to the Joint Director, Operations Division, Exchange Policy Department, SBP, Karachi within three working days from the date of remittance. The original Form ‘M’ shall be submitted as usual through schedule E-4 while reporting the transaction in the monthly Foreign Exchange Returns.
- iv) Any irregularity detected and advised by the State Bank shall be rectified by the concerned airline/GSA/shipping company/agent within ninety days or the amount under objection will be repatriated or adjusted from subsequent remittance, as applicable.
- General Average Payments.
- i) Applications for remittance of general average collected from consignees in Pakistan shall be made by the shipping companies/shipping agents on Form ‘M’ accompanied by the following information/documents:-
- a) Circular of Insurance Association regarding general average.
- b) N.O.C. from the Insurance Association and National Insurance Company Limited about the remittance of the amount of the general average.
- c) The amounts collected from each individual consignee.
- d) List of cargo subject to general average.
- e) The general average bonds covering the collections.
- f) General Average Award.
Authorised Dealers may allow remittances on the basis of these documents and attach the same with the ‘M’ form, while reporting the transactions in their monthly Foreign Exchange Returns.
- ii) Pending General Average Award, the Authorised Dealers may also issue bank guarantees in favour of the General Average Adjusters on submission of the information documents referred to from (a) to (e) above. Remittances under the guarantees will, however, be allowed by them on production of General Average Award.
iii) In the case of exports from Pakistan, if general average is declared and if the general average claim is paid by the overseas importer, the insurance company in Pakistan, with whom the goods were insured prior to shipment from Pakistan may be allowed to reimburse the amount to the overseas importer on production of the following documents, which should be submitted to the State Bank as mentioned in sub-para (i):
- a) Export Realisation Certificate.
- b) All shipping documents viz. a copy of the bill of lading, invoice, insurance policy etc.
- c) Average deposit receipt duly endorsed by the overseas importer in favour of the insurance company in Pakistan.
- d) Letter of subrogation.
- e) An undertaking to render the account on finalization of the award.
- Operating Expenses of Pakistani Shipping Companies/Airlines.
Pakistani shipping companies and airlines are required to submit to the State Bank a monthly statement of their earnings and expenditure at foreign ports in the prescribed forms (Appendices V-45 and V-46) supported by passage/freight manifest for receipts and by vouchers in respect of payments. They can make disbursements in respect of approved transactions only out of their receipts at foreign ports and they are under obligation to regularly repatriate the excess collections, if any, to Pakistan and attach the bank encashment certificates with the statement. In case the collections fall short of the disbursements, the shipping companies/airlines should make an application to the State Bank for remittance of the deficit or for meeting bonafide individual items of disbursements like crew wages, bunkering charges, port dues, food charges etc. Applications for repair of ships/aircrafts and purchase of durable stores other than food provisions should, however, be routed through the Ministry of Communications in the case of shipping companies and the Ministry of Defence in the case of airlines.
- Charter of Foreign Ships and Aircrafts.
Persons or firms intending to hire on charter non-resident owned ships or aircrafts should apply in the first instance to the Ministry of Communications for the charter of ships and the Ministry of Defence for the charter of aircrafts. Applications for remittance of charter hire should be made to the State Bank on Form ‘M’ supported by the Government sanction and a copy of the Charter Party Agreement and an undertaking that detailed account of all disbursements made for the account of the owners will be submitted to the State Bank within 15 days of the expiry of the agreement. If the application is approved, a permit will be issued to cover any advance payments required under the terms of the charter but the remittance of the total amount agreed upon will not normally be sanctioned until the final account of disbursements is made available to the State Bank. The charterers should seek from the owners’ periodical reimbursement of the disbursements made on their behalf or have them adjusted from their remittances of charter hire.
- Export Claims.
Applications from exporters for remittance of various types of claims on exports should be made on Form ‘M’ accompanied by a declaration in the prescribed form (Appendix V-47) duly supported by the following documents: –
(i) QUALITY CLAIMS.
- a) Proceeds Realisation Certificate.
- b) Debit Note from the buyer.
- c) Test Report from a recognized Test House or an Arbitration Certificate from an approved body of arbitrators.
(ii) AMICABLE SETTLEMENT.
(a) Proceeds Realisation Certificate.
(b) Debit Note from the buyer.
(c) Certificate from the Chamber of Commerce in the country of import.
(d) Correspondence in original exchanged between the shippers and the buyers. Original cables should be produced if cable charges are included in the Debit Note.
(iii) COMMISSION (If not paid in terms of the authority delegated vide Chapter XII).
(a) Proceeds Realisation Certificate.
(b) Debit Note.
(c) Agreement regarding payment of Commission. Shippers should furnish a copy of the Export Price Check (EPC) form registered with the relevant authority, if the goods are subject to “Export Price Check” procedure. The form should show the rate of commission.
(iv) NON-FULFILMENT OF EXPORT CONTRACT EITHER IN FULL OR IN PART.
- a) Debit Note from the buyer.
- b) Contract in original.
- c) Arbitration award from a recognized arbitrator.
- d) Correspondence in original exchanged between the buyer and the shipper.
- e) In case of claim for partial non-shipment, Proceeds Realisation Certificate for the quantity shipped.
(v) INSPECTION FEE, ARBITRATION FEE, SURVEY AND ANALYSIS FEE, CONTROLLING FEE, WEIGHING CHARGES ETC.
(a) Proceeds Realisation Certificate.
(b) Debit Note from the institution claiming fees.
(c) Report from the above institution in support of the claim.
(vi) MISCELLANEOUS CLAIMS LIKE REFUND OF EXPORT DUTY ETC.
- a) Proceeds Realisation Certificate.
- b) Debit Note.
- c) Contract.
- d) Correspondence.
(vii) LOSS IN WEIGHT.
- a) Proceeds Realisation Certificate and Export Invoice.
- b) Debit Note from the buyers.
- c) Weighment Certificate/Note from a recognized weighing body and Controller’s Report.
Applications in respect of items (v), (vi) and (vii) may be approved by the Authorised Dealers and the prescribed documents surrendered to the State Bank alongwith the monthly Foreign Exchange Returns. Applications in respect of items (i), (ii), (iii) and (iv) will, however, require approval from the State Bank.
8.Guarantees for Payment of Claims.
- i) In case of export of cotton only, Authorised Dealers may extend guarantees in favour of overseas importers for payment of claim, provided the following conditions are fulfilled:
- a) Advance payment or confirmed and irrevocable letter of credit for hundred percent value has been received in favour of the exporter.
- b) The amount of the guarantee does not exceed 5% of the total invoice value covered by the advance payment or confirmed and irrevocable letter of credit.
- c) The guarantee covers shipment of cotton only.
- d) The guarantee is valid for a maximum period of 30 days after the last date of discharge of cotton in the country of import.
- e) The guarantee provides for payment of claims on submission of Liverpool Cotton Association Arbitration Award in case of exports to K. and of internationally known associations whose names are approved by the State Bank in the case of export to other countries.
- ii) Authorised Dealers may also allow remittance of claims falling within the terms of these guarantees provided the amount is fully covered by the Arbitration Award of the respective association. While reporting these remittances to the State Bank, the Authorised Dealers should enclose with the form ‘M’: –
- a) Relative Arbitration Award,
- b) Proceeds Realisation Certificate, and
- c) Certificate confirming the date of discharge of cotton in the country of import.
9.Employment of Overseas Agents etc.
Prior permission of the State Bank is required by persons or firms in Pakistan who wish to acquire the services of agents abroad for any purpose other than export of goods from Pakistan, whether on regular basis or otherwise. Applications for this purpose should be made by letter giving full details of the nature and value of business transacted in the past by the applicant, the existing arrangements and the nature of the arrangements proposed to be made with the overseas agents.
10.Remittance of Royalty/Franchise and Technical Fees.
(i) Royalty and Technical Fee in the Manufacturing Sector has been defined as under:-
- a) Definition of Royalty: Royalty is a fee paid by a local firm to the foreign collaborator in consideration of “Licence to use the foreign manufacturers’ patent/brand name for marketing the product(s).”
- b) Definition of Technical Fee: It is a fee paid by the local firm to the foreign collaborator in consideration of:-
- aa) Engineering and Technical Services including assistance on manufacturing process, testing and quality control, assistance by way of making available patented process and/or secret know-how and right to avail of the technical/confidential information resulting from continuous technical research and development etc; and
- bb) Technical training of local personnel.
No technical fee shall be allowed for simple conventional process goods which are being produced in the country without foreign technical collaboration.
- ii) The remittance of Royalty/Franchise and Technical Fee or Service Charges in Agriculture, Social, Infrastructure and Service Sector projects including international food chains may be allowed according to the following guidelines:-
(a) The initial lump sum fee payable to the foreign investor/the party providing technical expertise and/or allowing use of their brand name, should not exceed US$ 100,000/- irrespective of the number of outlets under one franchise.
(b) A maximum of 5% remittance of net sales (excluding sales tax) in the food sector may be allowed as Franchise Fee only for those items, which are core items of the franchise and are the specialties of the trade name. The payment of such fees will be allowed on monthly basis. No item will be eligible for twice payment of Royalty/Franchise Fee. In other words, the payment of Royalty/Franchise Fee shall not be admissible for those items whose franchise is not held by the food chains and/or which are sold under some other brand name e.g. soft drinks etc.
(c) Percentage/amount of fees etc., for other non-manufacturing projects may also be upto the maximum of 5% of net sales (excluding sales tax).
(d) Initial period for which fees is to be allowed to projects in non-manufacturing sectors, including international food chains, should not exceed 5 years. Subsequent extension in time period will be considered and allowed by the Government/State Bank of Pakistan, provided these projects also make investment in allied upstream projects.
iii) Upon execution of an agreement for transfer of technology with foreign collaborator, the local firm engaged in manufacturing as stated in sub-para (i) or operating in the non-manufacturing sectors as stated in sub-para (ii) will designate any of the Authorised Dealers in foreign exchange in Pakistan through whom payments under the agreement will be made and send an authenticated copy of the agreement to the State Bank of Pakistan, Exchange Policy Department (Investment Division), Central Directorate, Karachi through the designated bank within 30 days from the date of its execution. Application for acknowledgement will be made on the prescribed form (Appendix V-48). The State Bank will record the agreement if it conforms to the foregoing definitions of Royalty/Franchise and Technical Fees and send an acknowledgement or return it if the same is not in accord therewith
- iv) Remittance of Royalty/Franchise and Technical Fees may be allowed by the Authorised Dealer designated for the purpose, without the prior approval of the State Bank subject to the following:-
- a) Application for remittance of Royalty/Franchise and Technical Fees is submitted by the firm concerned in the prescribed form (Appendix V-49) in triplicate alongwith a copy of the acknowledgement letter issued by the State Bank.
- b) The correctness of the information furnished in the application(Appendix V-49) must be certified by the auditors of the firm in the space provided for the purpose. An additional statement showing calculation of Royalty/Franchise and Technical Fees duly certified by the auditors should also be enclosed with the application.
- c) Payment of income tax supported by a certificate from the auditors of the paying firm. In case it is claimed that the amount of Royalty/Franchise and Technical Fees is exempt from levy of Pakistan taxes, the applicant should invariably produce a certificate to this effect from the competent tax authority and attested copy of the said certificate should be enclosed with the prescribed application to be sent alongwith other relevant documents while reporting the transaction to the Exchange Policy Department.
(v) Authorised Dealers will maintain company-wise record of remittances allowed by them on the above account so as to facilitate inspection by the State Bank’s Inspection Teams.
- Technical Services and Consultancy Agreements and Engagement of Foreign Technicians.
(i) Foreign experts/technicians may be employed by the local firms in private sector without requiring approval by any Government agency for rendering such technical services as supervision of installation, commissioning of plant and training of personnel.
(ii) Authorised Dealers may accordingly allow remittances for engagement of foreign experts/technicians to foreign firms or establish letters of credit available for payment of such charges on production of beneficiary’s service invoices/bills duly certified by the employers in Pakistan. While reporting to the State Bank the remittances effected under this facility in the monthly foreign exchange returns, the Authorised Dealers will attach the following documents with relative Form ‘M’:-
(a) Copy of the service agreement entered into with the foreign firms.
(b) Beneficiary’s service invoices/bills duly certified by the employers in Pakistan.
(iii) It will be the exclusive responsibility of the Authorised Dealers to ensure that income tax has been correctly deducted from the amount payable to the foreign beneficiaries and paid to the income tax authorities or exemption certificate from the income tax authorities is called and recorded with the Authorised Dealers.
12.Remittances by Information Technology Sector.
(i) Remittances on account of items of the following nature may be allowed by the State Bank:
(a) Satellite Transponder Charges.
(b) International Bandwidth Charges.
(c) International Internet Service Charges.
(d) International Private Line Charges.
(e) Software Licence/Maintenance/Support Fee against specific “Software Licence Agreement” executed with the licensor on the basis of NOC issued by Pakistan Software Export Board.
(ii) Application on Form ‘M’ for such remittances should be submitted to the Joint Director (Investment Division) through an Authorised Dealer alongwith the following: