All
Authorized Dealers
In Foreign Exchange,
Dear
Sirs,
FOREIGN
CURRENCY LOANS
Attention
of Authorized Dealers is invited to the instructions conveyed
vide F.E. Circular No. 69 dated
the 24th October, 1994, permitting residents
to obtain foreign currency loans from abroad on reportable
basis for any purpose, subject to the conditions mentioned
therein.
2. It has
now been decided to permit those exporters who have entered
into firm contracts with the overseas buyers or are holding
letters of credit received from abroad, to obtain short
term loans in foreign currencies from outside Pakistan,
to the extent of the value of such contract/letter of credit
to enable them to finance the export of goods from Pakistan,
provided the exporters bear the exchange risk. It would
be permissible for exporters to arrange the finance in foreign
currency from outside Pakistan either directly or through
an Authorized Dealer. For this purpose, the Authorized Dealers
may issue guarantees to the lenders subject to compliance
with the Prudential Regulations in force.
3. The Authorized
Dealers and borrowers will be free to negotiate the interest
rates on such loans. The maximum tenure of such loans will
be 180 days.
4. The foreign
currency amount of loan obtained in terms of para 2 will
be required to be repatriated to Pakistan and encashed with
an Authorized Dealer. Such inward remittances will be reported
on Form
'R' Schedule ‘J’ with Code No.9711.
5. In case
an exporter utilizes this facility, he will not be eligible
to obtain export finance in local currency from a bank in
Pakistan for the same export commitment and in case he has
already obtained such a loan on the basis of the relative
contract/letter of credit, he will be required to repay
that loan immediately on encashment of the proceeds of the
foreign currency loan.
6.
A foreign currency loan obtained by an exporter in terms
of this general permission will be required to be repaid
alongwith interest out of the export proceeds received by
him. The exporter will instruct the Authorized Dealer, through
which the loan was received, and which is negotiating/handling
the export documents, to arrange to repay the foreign currency
loan and interest accrued thereon, less tax, to the lending
institution out of the proceeds of the bill. The concerned
Authorized Dealer will be required to report the realization
of foreign exchange proceeds of the exports as a 'purchase'
on Schedule
A-1 and the amount of loan and interest paid as 'sale',
as laid down in sub-paragraph (vi) of Paragraph
2 of F.E. Circular No. 69
of 1994. At the time of reporting sale, the Authorized
Dealer will attach with the relative Form
'M':
-
Proceeds
Realization Certificate evidencing transfer of the amount
of loan to Pakistan.
-
Income
Tax Officer’s/Auditor’s certificate indicating
the amount of tax due on the interest accrued on the
foreign currency loan.
It will be
the responsibility of the Authorized Dealer to ensure while
arranging payment/remittance of interest, that the payment
is made after deduction of tax, livable thereon.
7.
In case the loan matures after the export proceeds have
been realized, the export/proceeds to the extent required
for repayment of the loan and net interest on the due date,
may be retained in a foreign currency account opened for
this purpose, repayment made on the due date and the account
closed.
8. Notwithstanding
the utilization of export proceeds for repayment of the
loan, the Authorized Dealers will continue to be liable
to deduct income tax as required by the Tax laws.
9. In case
the exporter fails to fulfil the export obligations or there
is a delay in realization of export proceeds, repayment
of loan and interest accruing thereon less taxes, will be
made by him through Foreign Exchange Bearer Certificates
or from a foreign currency account.
10. In the
case of exports to ACU member countries where export proceeds
are not realized in convertible currencies, Authorized Dealers
have our general permission to make remittances of the amounts
of principal/interest less taxes, at the current exchange
rate subject to compliance of the drill laid down in para 6 above.
11. It is
intended to develop a procedure for allowing banks to provide
export finance in foreign currency from foreign currency
deposits accepted by them, after analyzing the effects of
the facility being extended through this circular. Head
Offices of Authorized Dealers are accordingly required to
convey their assessment of the performance of this scheme
to the Director, Foreign Exchange Department in the second
fortnight of January, 1996, bringing out the following information:-
-
The number
of their clients having availed of the facility.
-
The total
inflow of funds.
-
The extent
of repayments made through FEBC.
-
Has the
scheme resulted in enhanced export by their clients?
12.
Please bring the above to the notice of your constituents