ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has directed all ministries/Division to take necessary steps to replace insurance guarantee with bank guarantee wherever public money is involved, well-informed sources told Business Recorder.
These directions were issued during discussion on a proposal of Revenue Division (FBR) titled “introduction of necessary safeguards in EFS scheme to check its misuse.”
The Revenue Division briefed the forum that prior to Export Facilitation Scheme 2021, three export facilitation schemes were in place namely, Manufacturing Bond (MB) Scheme, DTRE, and
ECC approves key policy interventions in EFS
Export Oriented Unit (EOU) Scheme. These schemes were tailored to ensure that exporters had access to duty/tax free inputs, without the need to claim duty drawback and sales tax refunds, with appropriate checks and balances. These schemes not only facilitated exports but also maintained sufficient compliance frameworks to prevent misuse.
Salient features of previous schemes and EFS were highlighted in the summary. In 2021, the above mentioned schemes were abolished with a sunset clause and new unified Export Facilitation Scheme (EFS) 2021 was launched.
In EFS, many controls which were available in the previous schemes were done away with; the utilization period of input goods was enhanced up to five years; the authorization process was unduly liberalized by introducing auto-approval mechanism of 100% inputs pending determination of production capacity/Input-Output Ratios (IORS); introduction of insurance guarantee as a security instrument; approval of inputs for applicants without export history against export contracts on furnishing insurance guarantee etc. Introduction of such provisions created room for misuse of the scheme by unscrupulous units.
The Revenue Division further briefed the forum that many cases of misuse of the EFS had been unearthed by customs formations across the country wherein huge quantities of duty & tax free imported input goods were sold in the open market by EFS users having nil or negligible exports. There had also been cases of misuse of vendor facility and cases where imported inputs were utilized in domestic sales.
Analysis of cross-industry value addition showed that a large number of EFS users especially SMEs and new entrants had not achieved the required value addition as those units had not exported their imported stocks as per the EFS benchmark.
The concerned trade associations and chambers including the Karachi Chamber of Commerce & Industry (KCCI) and All Pakistan Textile Mills Association (Aptma) had also highlighted the misuse of EFS due to above mentioned loopholes and demanded to plug the same.
The SITE Association and Pak-Afghan Joint Chamber of Commerce & Industry also raised the issue of EFS misuse in the SIFC. Foregoing in view, it was expedient to introduce necessary safeguards in the EFS to curb its misuse and avoid further loss of revenue while ensuring that genuine exporters continue to avail its benefits.
The Revenue Division proposed following changes in the EFS for consideration and approval of the ECC: (i) reduction in utilization period: The existing input utilization period of up to 5 years is proposed to be reduced to 9 months for all EFS users, to be extended only in exceptional circumstances by a Committee constituted by FBR in this regard.
Based upon EFS data, the industry-wise average utilization period is attached which supports the proposed period of 9 months; (ii) Authorization Based on Production Capacity/Input-Output Ratio: Input authorizations will be based on prior determination of actual production capacity/IORS by Input-Output Co-Efficient Organization (1000) within 60 days.
However, existing EFS users with clean export profile and those whose provisionally determined production capacity/IORs have been finalized by IOCO will be allowed authorization on the basis of their past export performance.
Moreover, to ensure uniformity in determination of input-out ratios (IORs) and production capacity, the role of EDB is proposed to be done away with; (iii) Secure Guarantee Mechanism: insurance guarantees, being prone to misuse, are proposed to be replaced with bank guarantees.
The existing users having clean export profile, who are currently submitting Indemnity Bond and Post Dated
Cheques, shall continue to avail the same guarantee mechanism equivalent to their past export performance;(iv) Vendor Facility Controls: Only those EFS users having prior export performance can avail vendor facility and a complete particulars of vendors having sales tax registration as manufacturers, list of vendors to be registered in WeBOC for EFS and real-time feeding of movement of goods supplied to vendors in WeBOC;(v) drawal of samples to ensure the utilization of imported input in the exported goods: A risk based process for drawing and testing of samples is proposed to be introduced to check the misuse of replacement of imported inputs; and (vi) withdrawal of EFS facility from Importers of Iron & Steel Scrap: Inclusion of Iron & Steel scrap industry in EFS, mainly in the past 2 years for extraction and export of copper has created an anomaly of negative value addition as against the requirement of minimum 10% value addition for other sectors. Iron & Steel Scrap is, therefore, is proposed to be excluded from the scope of EFS.
During the ensuing discussion, the forum was apprised that prior consultation with stakeholders as required under rule 18(4) of the Rules of Business 1973 had not been carried out.
The Revenue Division explained that the summary was shared with the concerned ministries/Divisions in time; however, they had not furnished their comments even after lapse of fourteen days.
The forum directed the Industries & Production and Commerce Divisions to provide their input directly to the Federal Cabinet before Cabinet meeting.
Copyright Business Recorder, 2025