Bureaucratic hurdles: Will they ever end?

LAHORE: Duty and Tax Remission for Exports (DTRE) that is extremely favourable to exporters in competing economies has been butchered in Pakistan due to red tape, forcing even large exporters to opt for bonded warehousing.

One of the facilitations offered by the government of Pakistan to the exporters is DTRE. The simple concept of this scheme is to allow the exporters to import inputs consumed in their exported goods at zero duty.

The concept is attractive, but at the implementation stage the procedures are very cumbersome. The bureaucracy somehow managed to over-regulate the consumption of the imported inputs.

It is worth noting that DTRE license or permission is granted for one year. All imports made under this scheme have to be consumed within a year.

The inputs that are not consumed are then subjected to normal import levies plus some penalty.

It is not as simple as it looks. The DTRE license is granted on the basis of last years' export performance (there is no concept of permission for additional growth in export).

The exporter has to notify the revenue department about the order it has received from the buyer.

The permission for inputs is granted on the basis of inputs to be used in each article as ordered by the buyer in the invoice.

For instance, if there is an order for 100,000 men’s shirts and 100,000 trousers, both need the same inputs. The inputs are calculated separately.

If the buyer, in the middle of the order asks to reduce the number of shirts to 50,000, and increase the quantity of trousers to 150,000, the exporter is not allowed to consume inputs imported for the shirts for producing trousers. This is because he has to put the inputs separately under DTRE.

Another option is to seek permission to do so, which takes a long time. After the export order is executed and the inputs have to be accounted for to the regulator, the exporter is asked to pay the import duty for the 50,000 shirts that were not exported.

The argument that the same were used in the trousers is not acceptable (as it is against the rules formulated by the bureaucrats).

That is not all, the one-year license to import duty free inputs is not granted without hassle. The rent seeking cost is unaffordable for small exporters.

Every change in invoice order needs permission that again has cost. The entire system is so cumbersome that only a few avail this facility.

Similar facilities in India and Bangladesh are availed by almost all exporters (large or small). Before the introduction of DTRE the exporters were allowed to import inputs for export goods in bonded warehouses owned by them (usually in the manufacturing facility).

That facility has not been withdrawn and is still available.

Under the bonded warehouse scheme, the exporter has to apply for license to import inputs. It indicates the value of inputs for which the license is applied.

The license is valid for two years. The exporter has to consume the inputs within that period and pay normal duties for unused inputs.

There is no other restriction of using input for a specific order. The only expense of the exporter is the unofficial fee (over and above official fee) to expedite issuance of license.

Interaction with exporters revealed that they shifted to DTRE in haste believing that it was a better facilitation, but the bureaucratic hurdles created in the scheme have made its use cumbersome.

The old, bonded warehouse scheme is simple and the duration of license period is also longer (two years). Now most of the exporters are reverting back to this scheme.

One wonders why the same facilities cannot be offered in DTRE. The exporter should be required to give documentary evidence of the use of imported inputs in the export order instead of allocating inputs for specific articles based on the export order received by the buyers.

The undue ted tape has marginalised the small exporters that until now were the main export source. Now the export share of larger exporters is increasing and that of small exporters declining.

Small exporters need hand holding by the government. They cannot afford to pay the ‘out of pocket expenses’ needed to secure a license for the bonded warehouse.

It should be ensured that they are provided hassle free services by the government departments. Large exporters are operating at their full capacities, still the exports are not increasing at the desired pace (only two percent increase in the last five months of this fiscal).