Cash Incentive of Export: Procedure in Bangladesh
An export is a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. Exports are a crucial component of a country’s economy, as the sale of such goods adds to the producing nation’s gross output.
Export subsidy or cash incentive is one of the main supports has given to the exporters to encourage or help them become competitive in export markets. The government facilitates exporters by providing service subsidy and cash subsidy. Services are to facilitate exporters to sustain competition which includes the availability of all related logistics, research, information, infrastructural support, etc. Basically, it is an indirect mechanism of support. On the other hand, the cash subsidy can be direct or indirect. The direct subsidy is in the form of support through Cash Incentives, while subsidies in the form of Duty Draw-Back, Bonded Ware House Facilities and Tax Benefits assume the form of Indirect Support.
Duty Draw-Back: the exporter does not have to pay any kind of duty in the port.
- A drawback is a rebate on taxes or tariffs paid by businesses on goods that were imported into the United States and then exported out again.
- The rebate from a drawback can include raw materials used in the manufacturing of other products that are eventually exported.
- A drawback does not apply to goods that have been damaged or spoiled prior to being exported
BONDED WAREHOUSE FACILITY:
Bonded Warehousing means the facility provided to export-oriented industries for importing inputs/raw materials and packaging materials without paying any duty or taxes. The National Board of Revenue (NBR) provides Bonded Warehousing benefits to a wide range of industries to encourage export-oriented industrialization and facilitate exports. Availing the bonded warehouse facility is important for the export-oriented industries, as it enhances their export competitiveness.
In order to avail the Bonded Warehousing facility, interested enterprises will have to take a Bond License from the Customs Bond Commissionerate. Bond Licenses are issued and maintained as per the Bonded Warehouse Licensing Rules, 2008
For export-oriented industries, the bond period varies from industry to industry. Bonding periods are shown below:
|Bonded warehouse types
|Special Bonded Warehouse
|24 Months; Commissioner reserves the power to extend the bonding period for a maximum of 6 months
|24 Months; Commissioner reserves the power to extend the bonding period for a maximum of 6 months
|Home Consumption Bond (e.g. British American Tobacco, Hayes and Haier, Meghna, Citi group, TK)
|6 Months; Commissioner may extend the bonding period for 3 months and NBR may further extend the bonding period for 3 months
|24 Months; however, Commissioner reserves the power to extend the bonding period for a maximum of 6 months
|Diplomatic and privileged persons Bonded warehouse
|12 Months; Commissioner may extend the bonding period for 3 months and NBR may further extend the bonding period for 3 months
|Ship Builders Bond
|48 Months; bonding period is extendable.
This scheme was first introduced in 1994 as ‘Cash Compensatory Scheme (CCS)’ as a motivating mechanism to increase export and also to establish the backward linkage. At that time this facility was made available to RMG and special textile units which are either not covered by or choose not to use the bonded warehouse facilities and duty drawback facilities. The rate of Cash Incentive was 15% of FOB export value. This facility was introduced for the economic development of the country by increasing export through establishing backward linkage so that they are encouraged to procure their raw material from inland. These facilities are provided only those who use their raw materials from the country not from another country.
Reasons for giving Cash Incentive Facility
The main reasons for providing cash incentive facilities are:-
- To increase total export of the country.
- To establish the backward linkages of different sectors.
The other reasons for giving cash incentives which are directly or indirectly related to the facility are:
- To increase foreign remittance and to increase the foreign currency reserve.
- To use the local raw materials instead of foreign raw materials for example- using local yarn instead of foreign yarn in garments industries.
- To make competitive the local raw materials and finished products of some selected sectors such as fabrics and garments sector against that of the neighboring countries like India and Thailand etc. Because the price of produced yarn in our country is more than that of India and Thailand and the price of accessories used in our garments sector is also comparatively higher than that of the neighboring countries.
- To facilitate more value addition in a different sector. For example, if the cash incentives are given then the garments sector will not import foreign yarn and accessories and will use locally produced yarn and accessories and for this local value, the addition will be increased.
- To expand the new market for export
Conditions for Availing Cash Incentive facilities
For different sector, there are different conditions which should be fulfilled to avail cash incentive facility. If any exporter wants to take the Cash Incentive facility, then they have to fulfill the following conditions:
- In the case of RMG exporter, Items should be produced from local yarn collected from a member of the BTMA (Bangladesh Textile Mills Association).
- No duty drawback facilities and bonded warehouse facilities have been or will be avail for the exported items from any process from cotton to yarn, fabrics, and RMG by any person for the items used in the production process.
- The CI recipient, stated on local BTB L/C for collecting cotton or yarn against the contract sheet or L/C, will apply for CI facilities in the applicable form to his negotiating bank after negotiation of documents for his own export or fabrics supplied. But CI will be payable after the realization of the export proceeds. Different parties will apply in different prescribed forms applicable to him.
- Only one party among the yarn manufacturer, fabrics suppliers, and exporter will get cash Incentive.
- Application for cash Incentive will submit his application to the negotiating bank within 180 days of the realization of the export proceeds. (F.E Circular 09, 2001).
Papers to be submitted for processing file
- Incentive Claim Sheet
- Cost Breakup
- Proceeds Realization Certificate
- Utilization Declaration Copy
- BTB L/C Opening Certificate
- Board of Investment Certificate Copy
- Export L/C Copy
- Commercial Invoice of Export Copy
- Packing List of Export Copy
- Bill of Lading Copy
- Shipping Bill Copy
- EXP Form Copy
- Valid EPB Copy
- BTB L/C Copy
- Pro-forma Invoice Copy
- Delivery Challan Copy
- Yarn Commercial Invoice Copy
- Yarn Packing List Copy
- Yarn Supplier’s Certificate (Original)
- Cash Assistance Certificate BKMEA (Original)
- BTMA (Original)
- Undertaking on Non-Judicial Stamp
Scrutiny of Documents
From its inception, the audit of cash incentive was done by the internal auditor of the negotiating bank. Then Bangladesh Bank found a lot of inconsistency as submission of false statement, or fake exporter or fake importer, etc. So that in 1997 Bangladesh Bank ordered to submit the cases in there negotiating bank. Here the audit work was done by Bangladesh Bank’s auditors. Then from 2002, the Bangladesh Bank appointed the auditors of the negotiating bank to the audit of the cash incentive cases. Bangladesh Bank disburses the fund to the negotiating bank on the basis of incentive applied and bank disburses the fund on the basis of certificates given by the audit firm on the cash incentive cases.
Steps to follow to avail Cash Incentive Facility
- Initially, the bank officer will check the papers as per the circular. If any required paper is not submitted, the bank will issue a letter to submit the papers immediately.
- The later bank will calculate the cash incentive amount, which is applicable for the claim in a sheet provided by the Bangladesh Bank.
- Next, the bank will send the papers to the authorized Auditor approved by the Bangladesh Bank.
- Auditors will scrutiny the papers and issue certificate with the eligible amount for cash assistance.
- Bank will forward the certificates to Bangladesh Bank through Head Office claim the fund from Bangladesh Bank.
- Then Bangladesh Bank distributes the cash incentive fund of different categories as per audited certificate to Head Office.
- Head Office then distribute the cash subsidy to the respected branch to credit the same to the exporters account after deducting necessary charges like 3% source tax, loan amount, etc.
- Branch will have to keep the papers/documents for the next 5 years for audit purpose.
After having the certificate from the authorized Auditor, Exporter may apply for advance credit facility against the certificate. As per our bank circular, maximum 70% of the claim amount is allowable for advance assistance which is called Qurds. It will be adjusted with the fund received from Bangladesh Bank. As per Bangladesh Bank circular, If the branch is satisfied with the submitted papers, the branch may allow up to 90% advance facility of the claim amount.
Service Charge: Tk.1000.00 per proposal.
Wastage rate fabrics to RMG are 9% and yarn to fabrics is 7%. Total wastage rate yarns to RMG will not more than 16%. The cash incentive is given on the amount of 80% net FOB & cost of yarn after deducting wastage (whichever is lower). Cost of yarn is calculated by-
Yarn According to the Pro-forma Invoice
Dyeing $1 per kg
Knitting $2 per kg
Auditors will be paid as per Bangladesh Bank Circular No.FEPD(COM)291/2002-1367 dated 02.06.2002 against the file submitted for cash assistance on the basis of amount:
- Claim up to 5 lac 4000.00
- Claim above 5 lac up to 10 lac 5000.00
- Claim above 10 lac 7000.00
Audit bill will be paid by debiting Suspense A/c, which will claim to Bangladesh Bank and the amount of suspense account will be adjusted after receiving fund from Bangladesh Bank.
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Processing Fee for Cash Incentive File:
As per our schedule of charges, the processing fee for Cash Incentive file will be as follows:
- Claim up to 2.00 Lac 3000.00
- Above 2.00 Lac to 5.00 Lac 4000.00
- Above 5.00 Lac 5000.00
EXPORTERS’ RETENTION QUOTA (ERQ) ACCOUNT
Retention quota for merchandise exporters
Merchandise exporters are entitled to a foreign exchange retention quota of 60(sixty) percent of repatriated FOB value of their exports. However, for exports of goods having high import content (low domestic value-added) like POL products including naphtha, furnace oil, and bitumen, readymade garments made of imported fabrics, electronic goods, etc. the retention quota is 15(fifteen) percent of the repatriated FOB value
Eligible currency and utilization
Fund from ERQ accounts of the exporters may be used for settlement of import liability and repayment of an authorized foreign loan of their subsidiaries/sister concerns.
Advance payment against import using ERQ accounts
ADs may effect advance payment not exceeding USD 25,000 (twenty-five thousand) or its equivalent from the ERQ account against bonafide business purposes provided the relevant contract/proforma invoice stipulates for such payment subject to the following terms and conditions:
- The ADs shall have to be satisfied that repayment guarantee is not obtainable from the supplier against the remittance to be made in advance;
- IPO in force shall have to be meticulously followed;
- The ADs shall, at their own responsibility, have to arrange for repatriation of the remittance made in advance in case the entry of goods into the country is not effected within the stipulated time;
- While opening Back to Back L/C, the ADs should adjust the value of the advance payment to ensure that the value addition requirement as stipulated in the IPO is not breached; and
- Before effecting the advance payment, the ADs must obtain Form of Undertaking (Appendix 5/15) duly signed by the importer.
International cards may be issued to the exporters against balances held in ERQ accounts. The arrangements for the issuance of international cards
COMMERCIALLY IMPORTANT PERSONS (CIP)
On Sunday, November 10, 2017, 164 people were recognized as Commercially Important Persons (CIP) by the Commerce Ministry for their contribution to the economic growth of Bangladesh in 2014.
With 562 CIP cards having been granted by the Commerce Ministry over the past four years.
CIPs are awarded in various categories each denoting a particular industry, such as the leather product sector, frozen food sector, and knitwear sector. A CIP in Bangladesh can avail a number of benefits and facilities for one year once he or she has been given the card for their contribution to their respective sector.
These facilities include permission to enter the Bangladesh Secretariat, invitations to participate at various national programmes, priority booking for air, railway and waterway tickets for business purposes, as well as assistance from the Foreign Ministry in the issuance of visas through letters of introduction that they send to the embassies concerned. Furthermore, CIPs also get access to the VVIP lounges at airports, and their family members receive priority when booking cabins at government hospitals for treatment. However, some of the CIPs told the Dhaka Tribune that there were occasionally difficulties in availing these benefits.
Contributor:Mamun-Al-Amin,FAVP,SIBL, Principal Branch