Like an importer, there are certain conditions that a person must fulfill to become an exporter.
The person must be an account holder of nearest branch of any bank he/she likes
No one can export any commodity until and unless he/she is a Pakistani and has a valid export registration with the EPB, along with Registered NTN & STRN under FBR Pakistan
The person must possess a valid NTN (National Tax No.) certificate.
A person cannot export any good unless he files a Form E (E stands for exports) with his application to the bank. The form E must be filled in writing and all specifications stipulated on the form, must be met.
Completed Export Cycle
The process of export starts with the receipt of the letter of credit (or contract) by the bank. The issuing bank sends the L/C to through the advising bank.
Upon receipt of L/C, an intimation letter is prepared and is sent to the beneficiary of the L/C, advising him that he contact to bank and he should collect it immediately.
As mentioned earlier, an E-form is necessary for exports out of the country. It is a part of the exchange control mechanism of the State Bank of Pakistan.
When an exporter receives an L/C, the next job is to get an E-form from the bank. The E-form is a quadruplicate and contains the following information.
- The Commodity
- The Quantity
- The Price
- The Port of Shipment
- The Port of Destination
- Terms of Shipment
- Export Registration Number
After filling in the complete information about the goods to be exported, the exporter brings the E-form to the bank for verification.
The bank verifies the contents in accordance with the documents and not by physical checking.
After getting the E-form verified from
As the banks only deal in documents, so in order to receive the payment for his good to be exported, the exporter has to send certain documents to the L/C issuing bank via negotiating bank. ‘
A very important step in the export process is to scrutinize the documents, before sending them to the issuing bank. It requires utmost care and attention of the bank officer.
When the documents are presented in the bank, they are always scrutinized and they must be in accordance with the requirements stipulated on the L/C.
Any deviation could result in rejecting the documents by the importer, hence causing loss to the exporter or even to the bank if the documents are to be negotiated.
Collection / Negotiation
When the exporter comes to the bank with the documents, he has two options
- Send the documents for collection
- Get them negotiated
The bank sends the documents on behalf of the exporter to the issuing bank and payment against them is received after a specific period. In the collection, the exporter is paid only when the bank obtains reimbursement from reimbursing the bank.
The payment is made to the exporter in PKR (Pak Rupees) and the exchange rate is the buying rate of the day normally called T.T Buying Rate.
Deduction of Tax
Withholding Tax is deducted on the realization of export proceeds, under Income Tax Ordinance 1979. The rate of tax varies from 0.75 to 1.50 percent, depending upon the nature of commodity, like if I have four commodities i.e, rice, curtains, cloth, yarn, then following four tax rates will de applied on them.
- 0.75% for the export of Rice
- 1.00% for the export of Shoes
- 1.25% for the export of Cloth
- 1.5% for the export of Yarn
In case of Negotiation, the bank purchases the documents (clean documents having no discrepancy, against L/C’s only) from the exporter, i.e., the exporter gets them discounted before their maturity.
For example, if the payment against documents for the exports has to be received after 60 days. The exporter might not want to block his payment for this period. So, he can get his documents negotiated from the bank, the day he presents them to the bank. In this case, the exchange rate he will get is called O.D Buying Rate.
This rate is slightly less than TT buying rate because the bank pays him an amount that it is going to receive after 60 days by the bank. These buying rates are updated every day (like selling rates) and are available to the exporter before he decides whether to get his bills discounted.
The documents brought by the exporter are in the form of sets containing an original and a number of copies. The number of each document required by the importer is mentioned on the L/C.
The exporter, however, deposits more copies of documents that the number to be sent. The bank keeps the additional copies along with the E form for its own record. A bill of exchange, drawn by Bank
Issuing bank is prepared. Then these documents are sent to the L/C issuing bank along with the covering schedule (discussed in imports section).
When the documents are sent to the issuing bank, it becomes an obligation of the issuing bank to make the reimbursement. In case of sight credit, the payment is to be made within 12 days of receipt of the documents by the issuing bank (via reimbursing bank).
However, if the credit is a Usance credit, then an acceptance (to the bills of exchange) is sent to the negotiating bank, in which the issuing bank gives the undertaking, to make payment on a specific date (maturity). The exporter is intimated about the date on which the proceeds would be realized.
When, the proceeds for documents sent for collection are realized, the exporter’s account is credited with the PKR amount, by converting the foreign currency amount into PKR at the selling rate of that day (after deducting the tax and other charges) or take the special rate from.