1. 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.

2. Import Trade Control.

Import of goods into Pakistan is regulated by the Ministry of Commerce, Government of Pakistan, under the Import and Export (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.

3. Registration of Importers.

(i) 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.

4.Opening of / extension in letters of credit --- time frame / change of beneficiary.

(i) Authorised Dealer can 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, this period is upto 24 months. The validity of the letters of credit within the 12/24 months period mentioned above can be extended by the Authorised Dealer at any time if requested by the importers. Authorised Dealers can also extend the validity of the letters of credit beyond the initial period of 12/24 months mentioned above for a further period of 24/36 months in the case of items other than machinery and mill-work and "machinery and mill-work" respectively provided the requests for extension are received within the initial period of 12/24 months adverted to above or extended validity period. Such extensions will be subject to payment by the importers of revalidation charge @ 0.25% for each six monthly period on the un-utilized value of letters of credit.  The revalidation charges will be payable for the period commencing after the expiry of initial 12/24 months period mentioned above. The goods will be released by the Customs in cases where import has been made within the initial 12/24 months period without any certificate from the L/C opening bank while release of goods imported during the extended period will be subject to production of bank certificate as per Appendix V-23.

(ii) Authorised Dealers are also allowed to amend the letters of credit envisaging change of the beneficiary at the request of the importers provided the importers approach the Authorised Dealers for the change within the validity of the letter of credit.

5. Payment through Authorized Dealers in the Foreign Exchange Area of the Importer.

6. 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.

7. Endorsement of the Amount on Invoices.

Before delivering the import documents to the importers, Authorised Dealers should endorse on the invoices accompanying the bills, the amount of foreign exchange both in figures and words which they have remitted from Pakistan. The endorsements should be made under their stamp and signature. The same procedure should be followed by Authorised Dealers in respect of remittances made by them against bills received on D.A. terms.

8. Terms of Imports.

Subject to the provisions of this Chapter, imports can be made on FOB basis, C&F liner terms basis or C&F free out basis. However, prior permission of the State Bank shall be obtained for import of sugar and food grains (cereals) on C&F free out basis.

9. Remittance of Bank Charges in respect of imports.

The 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-utilised 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.

10. 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, Authorised Dealers may allow remittance of the excess amount subject to the following conditions:

(i) The amount does not exceed 5 per cent of the amount of letter of credit subject to a maximum of US $500/-.

(ii) The bill of entry / certified invoice in respect of the consignment covers the increased amount.

11. Collection of Freight on Imports on F.O.B. basis in the Private Sector.

12. Collection of Freight on F.O.B. Imports by Public Sector in other Cases.

The cases of imports by the public sector on FOB basis the carriers should not accept freight in Rupees without an 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-25) from the concerned Department / Agency authorising the State Bank to debit its foreign exchange allocation with the freight amount. As an exception to the above, it will be in order for the carriers to accept freight in Rupees on account of F.O.B. imports by 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.

13. Shipment of public sector cargo through PNSC vessels / PIA.

14. Payment of Freight on Import of Trade Samples.

Airlines / shipping companies can accept freight in Rupees upto Rs. 500/- 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.500/-. The certificate should be submitted by the airlines / shipping companies to the State Bank alongwith their monthly statement in which the collection of such freight is reported.

15. 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 on the basis of authorization to be issued by the Ministry of Commerce, Government of Pakistan.

16. Remittance involving Violation of I.T.C. Regulations.

(b) In the cases of contraventions of the Import Policy Order which the Authorised Dealers have not been authorised to condone, the Custom authorities shall release the goods on importers' producing authorization from the Ministry of Commerce, Government of Pakistan.

(c) Authorised Dealers may effect remittances in the cases falling under sub-para (a) above, on deposit of the amount of penal surcharge in the appropriate Government account while in the cases falling under sub-para (b) above, Authorised Dealers may effect remittances on importers' producing the authorisation from the Ministry of Commerce, Government of Pakistan.

(d) The powers delegated under sub-para (c) above, is subject to Authorized Dealers ensuring before effecting the remittance that all other terms and conditions of the letter of credit have been duly compiled with.

17. Imports on Private Account.

18. Import Letter of Credit.

Authorised Dealers should not establish, advise, notify or confirm any letter of credit or guarantee or similar undertaking covering imports into Pakistan the implementation of which would involve remittance from Pakistan except in accordance with the regulations laid down in the following paragraphs.

19. Terms on which Letters of Credits may be opened.

All letters of credit and similar undertakings covering imports must be documentary letters of credit and should provide for payment to be made against full set of clean on board (shipped) bill 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. All letters of credit must specify submission of signed invoices certifying the country of origin.

20. (i) Import on Usance Basis.

The 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 should 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 charged to sight basis.

20. (ii) Premature Payment of Usance Bill.

Usance imports can also be made on the basis of letters of credit/contracts envisaging prices quoted on spot basis and payment of interest separately at a rate not exceeding the relevant LIBOR + 1.5%. The payment of interest will be subject to deduction of Pakistan taxes, if livable. In the cases falling under this category, the suppliers will draw separate Bills of Exchange for the spot price of the goods shipped and for the interest amount. The Authorized Dealer will arrange remittance of the amounts of the Bills on maturity after deduction of Pakistan taxes livable on the interest amount. To this end, the importer will furnish to the Authorized Dealer a certificate from the Income Tax Officer showing the amount of tax payable on the interest amount and quadruplicate copy of the receipted challan showing the deposit of the tax amount in the Government account. The Authorized Dealers will also maintain a register for recording details of such transactions in the following format:-

Above Paragraph Updated via F.E. Circular 13, dated 27th May 1997.

Above Paragraph Updated/Added via F.E. Circular 12, dated 27th May 1997.

21. Imports 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 and after scrutiny of the following documents.

(a) Memorandum of agreement or contract of sale; and

(b) 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.

22. 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 conditions:

(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, 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 fulfil the conditions at (i) and (ii) above the Authorised Dealers should refer their cases to the State Bank with full particulars.

23. Types of Letters of Credit not permitted.

All imports into Pakistan, except those specifically exempted in the Government Import Policy, are subject to compulsory letters of credit / registration of contract. It is, however, 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.

24. Prohibition to open Letters of Credit for Import from Certain Countries.

It is also not permissible to open letters of credit for imports into Pakistan in favour of beneficiaries in Israel or of goods originating from that country.

25. Imports by PICIC / NDFC / BEL / NDLC under Foreign Currency Loans of Credit.
(i) PICIC / BEL / NDFC / 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 / BEL / NDFC / 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.

26. Letters of Credit to be opened only against Firm Contracts.

Above Paragraph is updated via F.E. Circular 18 dated 17th February 1994.

27. Methods of Payment under Letters of Credit.

(a) 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.

(b) 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.

(c) 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.

(d) Letters of credit established as per (a),(b) and (c) above should provide for payment in any of the following manners:

(i) in any foreign currency.

(ii) 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.

(iii) Through ACU Clearing Arrangement where letters of credit envisage shipment directly from ACU member countries.

(e) 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.

(f) It is also not permissible to establish letters of credit providing for alternate countries of origin of goods unless prior approval of the State Bank is obtained.

28. Imports on Consignment   basis.

The undernoted procedure will be adopted for making imports of goods not subject to authorization from the Export Promotion Bureau / Ministry of Commerce without opening of letter of credit.

(i) The importers will submit a copy of the contract / purchase orders / proforma invoices / indents etc. to the Authorised Dealer for registration. The Authorised Dealers not holding the original category pass books of the importers can also register the contracts / purchase orders / proforma invoices / indents etc. pertaining to freely importable items after calling for authenticated photostat copies of the category pass books from the Authorised Dealer holding the original document.

(ii) The Authorised Dealer registering the contract etc. will issue to the importers, a registration certificate in the format in Appendix V-27.

(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 30 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 Authorized Dealer from the overseas supplier instead of the bankers of the suppliers, prior approval of the State Bank for remittance should be obtained in accordance with the instructions contained in para 31 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-133, V-134, V-135 and V-136 (para 15-Chapter XXII).

Above paragraph Updated via F.E Circular 91 dated 11th November 1992 and consequently updated by the Reprint of  Chapter 13 as published by the State Bank of Pakistan dated 30-9-1994.

34. Functional Utility of the various copies of Form 'I'.

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.

36.Use of Foreign Exchange Acquired for Imports.

37. Loss of Goods.

38. Designation of Authorised Dealers.

(a) The State Bank designates Authorised Dealers for handling imports under Foreign Loans / credits and barter agreements including PL-480 program. 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.

(b) 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.

39. Rates of Commission to be charged by Banks.

(a) Authorised Dealers may recover from the importers following charges.

(i) Bank charges specified in and remittable under the provisions of para 9 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'.

(ii) Their own commission at rates allowed by the Banking Policy and Regulation Department from time to time.

In respect of imports under Aid / 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.

(b) Authorised Dealers may recover commission at the following rates on letters of credit covering imports by the Government routed through State Bank:

(I) 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:

(i) 1/8 % if the value of the letter of credit is less than Rs.250,000/

(ii) 1/16 % if the value of the letter of credit is Rs.250,000/ - or more.

(II) 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.

40. Special Features of various Aid, Loans and Credits.

(a) 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. 2% or 10% 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

(b) 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.

(c) 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.

(d) 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.

(e) 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 specify 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 realized in convertible currency outside the Clearing Arrangement.

Paragraph 58 Updated via F.E. Circular 61, dated 15th August, 1993.

45. (a) Documents received on Collection Basis due to Discrepancy.

(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 para 44 above.

(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.

45. (b) Documents received on Usance.

The designated Authorised Dealer is required to deposit counterpart funds with the State Bank within the period specified in para 43 above. 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. (c) Deposit of Funds 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 para 44 above. 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 Pakistani Intermediaries.

(a) The State Bank is prepared to consider applications from residents of Pakistan to finance import of goods for residents in foreign countries provided that arrangements are made to receive appropriate reimbursement from the country of ultimate import in each case either by back to back letter of credit or other suitable method. Such cases will be considered by the State Bank to whom applications should be made giving details of the arrangements under which the business is proposed to be conducted.

(b) As an exception to the above rule, residents of Pakistan have been 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:

General permission has been accorded to the Authorised Dealers for opening and maintaining Special Foreign Currency Accounts for merchanting trade which will be subject to the following terms, conditions and the procedure:

47. Foreign Currency Loans and Credits.

(i) 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, NDFC, NDLC, Bankers Equity Ltd., and IDBP who in turn disburse them to their constituents. The credits for import of commodities, raw materials, spares etc., are normally disbursed through bank 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.

48. Pay-As-You-Earn Scheme.

Since February, 1973 the Government has also instituted a scheme of Suppliers Credit called PAY-AS-YOU-EARN Scheme under which entrepreneurs in the private sector can negotiate foreign currency loans for import of plant and equipment for export oriented industries either for establishment of new industrial units or for balancing, modernization, replacement and expansion of the existing export oriented units. The industries covered by the Scheme are:

(i) Export oriented industries which include:

(a) Industries such as fish processing and modern rice milling, the bulk of whose production is exported, and

(b) Industrial units set up for export market within industrial sub-sectors which serve both the local market and the export market, such as textiles, carpets, leather, fruits and vegetables. Units, to qualify under this category, must give a guarantee to export 50% or more of their total output. In special cases such as engineering goods, the limit may be reduced to 25% in the first three years and 33% thereafter.

(ii) Sub-contracting arrangements for exports under which manufacturing units are established in response to specific orders, which are received from the foreign non-residents firms by local manufacturers as a sub-contractor, and

(iii) Service industry like hotels etc.

(ii) The Authorised Dealer will furnish the original loan / credit agreement alongwith (5) copies, a list of the company's Directors, project report showing the details of the project including its cost (broken into local cost and foreign exchange cost), location of the project and copy of Certificate of the Incorporation of the company to the Investment Division, Foreign Exchange Control Department, State Bank of Pakistan, Central Directorate, Karachi. In the case of Buyer's Credit, 3 copies of the purchase contract will also be furnished.

(iii) Approval of the Government of Pakistan will also be furnished where the loan / credit is provided at concessional rates by the banks / financial institutions under the instructions or policy of the foreign Governments.

(iv) A copy of the loan / credit Agreement registered by the State Bank will be returned to the Authorised Dealer.

(v) The loan amount from foreign banks / financial institutions can be deposited in a foreign currency account to be opened with the prior permission of the State Bank. Such permission will be subject to such conditions as may be prescribed by the State Bank of Pakistan.

(vii) Alternatively, the sponsors may arrange a loan for financing down-payment to the suppliers of plant and machinery. Such an arrangement will, however, be subject to registration in accordance with the above procedure.

(ix) After the liability to the foreign lender / supplier of plant and machinery as mentioned in sub-paragraph (viii) above has been established, the repayment schedule as per specimen given at Appendix V-33 should be submitted to the Investment Division, Foreign Exchange Control Department, State Bank of Pakistan, Central Directorate, Karachi in sixtuplicate through the Authorised Dealer which has issued the repayment guarantee, for registration.

51. Re-payment under Pay-As-You-Earn (PAYE) Scheme.

(i) After the repayment schedule has been registered by the State Bank, the remittances on account of principal and interest will be allowed by the Authorised Dealer subject to compliance with the requirements set out herein and after deduction of tax if payable. In case of exemption from income tax, a copy of the exemption certificate should be attached with the relative 'M' form. The application for remittance towards repayment of cost of plant and machinery and interest accrued thereon (installment) will be submitted on the prescribed form (Appendix V-34) to the Authorised Dealer who had issued the related repayment guarantee. The application should be signed by the applicant and certified by the bankers and must be accompanied by Export Realisation Certificate in the prescribed form (Appendix V-35). The application will be accompanied by two forms 'M' (i.e. one for the amount of principal and the other for the amount of interest). Remittances on account of repayment of principal and payment of interest should be coded by the Authorised Dealers as 1830 and 1220 respectively, on schedule E-4 with Departmental Code as 775 in each case. Where the amount of 50% of the FOB value of export earnings of an industrial unit or enterprise in any financial year, upto the date on which the installment has fallen due, is not sufficient to cover the debt liability and other liabilities as laid down in Clause 7 of the Scheme, the remittance may be allowed by the Authorised Dealer concerned on submission of an undertaking by the applicant to the effect that he will submit evidence of having repatriated sufficient export earnings during the financial year concerned, to cover the remittance and that in case there is any shortfall, a penalty amounting to 27% of Rupee equivalent of the excess remittance plus interest thereon @ 9% per annum from the date of remittance, shall be paid to the State Bank on account of the Federal Government by the 8th July of the next financial year. This undertaking should be countersigned by the Authorised Dealer concerned, who should assume responsibility for the payment of the penalty and interest and forward the undertaking to the State Bank alongwith the form 'M' covering the remittance.

(ii) In respect of remittances made under the PAYE Scheme, the Authorised Dealers will send to the State Bank every month statements in triplicate in the prescribed forms (Appendices V-36 & V-37).

(iii) In case any discrepancy is found in the information contained in an application (V-34) or export realisation certificate (V-35) on the basis of which an Authorised Dealer has allowed remittance of principal and interest, the applicant will be required to arrange for repatriation to Pakistan of the amount, if any, remitted in excess or alternatively on demand by the State Bank, pay to it on account of the Federal Government penalty amounting to 27% of Rupee equivalent of the excess remittance plus interest thereon @ 9% per annum from the date of remittance. The Authorised Dealer who has allowed the remittance shall be responsible for compliance with the above requirements including payment of penalty and interest.

52. Payment of Penalty-Head of Account.

The penalty of 27% recoverable from the applicants under the above Scheme should be deposited with the State Bank by the concerned project or its bankers on challans filled in quadruplicate for credit to Federal Government's account with the State Bank under the head "1000 Non-Tax Receipts1300 Miscellaneous Receipts-1390 others-Fees, Fines and Forfeitures".

53. Re-payments under other Supplier's Credit / Buyer's Credit / Loans.

(i) After the repayment schedule has been registered by the State Bank, the remittance on account of principal, interest and other charges will be allowed by the Authorised Dealers strictly in accordance with the approved schedule. Remittance of interest will be effected after deduction of tax, if payable. In case of exemption from income tax, a copy of the exemption certificate should be attached with the relative 'M' form. Remittances on account of repayment of principal and interest shall be reported separately on forms 'M' and coded as 1952 and 1212 respectively with Department code 121. Such 'M' forms should be prominently marked at the top as under:

"Remittance of Principal / Interest under Loan / Supplier's Credit vide Repayment Schedule Registered with the State Bank under Registration No …………………………"