Drawback

Drawback Import Duty Export HM Revenue and Customs Bonded Warehouse
The refund of import duty by HM Revenue and Customs when imported goods are re-exported. Payment of the import duty and claiming the drawback can be avoided if the goods are stored in a bonded warehouse immediately after unloading from the incoming ship or aircraft until re-export.
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Definition

Drawback refers to a refund of import duties that governments provide for imported goods that are subsequently exported. In the United Kingdom, for example, HM Revenue and Customs allows for such refunds. The drawback aims to encourage exports by neutralizing the burden of import duties on goods that don’t remain in the domestic market.

Examples

  1. Textile Industry: A company imports fabric from another country for manufacturing garments. After producing and exporting these garments, the company can claim a refund of the import duties paid on the fabric.
  2. Electronics: A business imports electronic components for assembling devices that are then sold to foreign markets. Upon re-exporting the finished products, the business can apply for a refund of the import duties paid on the components.
  3. Food and Beverage: A beverage company imports unique ingredients from abroad to create a special line of drinks targeted for international customers. After exporting these beverages, the company can request a drawback for duties paid on the imported ingredients.

Frequently Asked Questions (FAQs)

1. What is the eligibility criteria for claiming a drawback?

  • Generally, an entity must have evidence of both the original import of goods and their subsequent export. It must also typically apply within a specified time frame.

2. How is the drawback claimed?

  • The process usually involves filling out a specific application form provided by the customs authority, along with necessary supporting documents like import/export declarations and receipts.

3. What types of goods are eligible for drawback?

  • Most imported goods that are re-exported in the same condition or after further manufacturing or processing are eligible for a drawback. However, regulations can vary by country.

4. Is it possible to avoid paying import duty upfront?

  • Yes, if goods are stored in a bonded warehouse immediately after being unloaded from the incoming ship or aircraft and remain there until they are re-exported, import duty and claiming the drawback can be avoided.

5. Are there different types of drawbacks?

  • Yes, different countries may have various programs such as substitution drawback, manufacturing drawback, or rejected merchandise drawback.

Bonded Warehouse: A secured area where goods are stored without paying import duty until they are re-exported or released into the domestic market. This can simplify the process of claiming goods under drawback.

Import Duty: Tax imposed on goods when they are brought into a country. It is meant to protect the domestic industry from foreign competition and to generate revenue for the government.

Export: The sale of goods or services produced in one country to another country. Exporting can influence a country’s economic stability and create employment opportunities.

Customs Declaration: A form that lists details about goods that are being imported or exported. It must be submitted to the customs authorities for review and approval.

Online References

Suggested Books for Further Studies

  • “Export/Import Procedures and Documentation” by Thomas E. Johnson and Donna Bade.
  • “International Supply Chain Management and Collaboration Practices” by Wilson Adarme Jaimes.
  • “Mastering Import and Export Management” by Thomas Cook and Rennie Alston.

Accounting Basics: “Drawback” Fundamentals Quiz

### What is the primary purpose of the drawback system? - [x] To neutralize the impact of import duties on goods that are re-exported - [ ] To reduce the cost of importing goods for domestic use - [ ] To encourage domestic consumption of imported goods - [ ] To increase government revenue from import taxes > **Explanation:** The primary purpose of the drawback system is to neutralize the impact of import duties on goods that do not remain in the domestic market but are re-exported, promoting international trade. ### How can companies avoid paying import duties upfront? - [ ] By paying half the duty immediately - [x] By storing goods in a bonded warehouse until re-exportation - [ ] By only importing goods that are not taxed - [ ] By immediate manufacturing and export > **Explanation:** Companies can avoid paying import duties upfront by storing imported goods in a bonded warehouse until they are re-exported. This process circumvents the initial payment of duties. ### Who provides the refund for import duties in the UK? - [ ] The importing company - [ ] The purchasing retail stores - [x] HM Revenue and Customs - [ ] International customs authorities > **Explanation:** In the UK, HM Revenue and Customs is responsible for providing refunds for import duties applicable under the drawback arrangements. ### What documentation is typically required for claiming a drawback? - [ ] A notarized affidavit - [ ] Employee identification - [x] Import/export declarations and receipts - [ ] A business license > **Explanation:** Typically, import/export declarations and receipts are required when claiming a drawback to confirm that the goods were both imported and subsequently exported. ### For which type of good can a drawback be claimed? - [ ] Only for domestically manufactured goods - [ ] Personal consumer goods - [x] Goods that are re-exported either in the same condition or after further processing - [ ] Goods sold in domestic markets only > **Explanation:** Drawback can generally be claimed for goods that are re-exported, whether in the same condition as imported or after further manufacturing or processing. ### What is an alternative to claiming an import duty drawback? - [ ] Paying the duty and absorbing the cost - [x] Using a bonded warehouse for storage till re-export - [ ] Applying for a trade credit - [ ] Financing via customs bonds > **Explanation:** An alternative to claiming an import duty drawback is using a bonded warehouse to store goods until they are re-exported, thus avoiding the initial duty payment. ### What impact does claiming a drawback have on a company’s finances? - [ ] Permanently increases tax liability - [ ] Decreases initial operational capital - [x] Results in a refund, improving cash flow - [ ] It increases stock liability > **Explanation:** Claiming a drawback results in a refund of import duties, thus improving a company's cash flow by reimbursing prior outlaid expenses. ### What is typically stored in a bonded warehouse? - [ ] Goods approved for domestic usage - [ ] Personal belongings of travelers - [x] Goods awaiting re-exportation - [ ] Only large machinery > **Explanation:** Bonded warehouses typically store goods awaiting re-exportation so that import duties do not need to be paid unless the goods enter the domestic market. ### Which authority usually implements drawback schemes? - [ ] Export organizations - [ ] Business trade associations - [ ] Local municipal offices - [x] Customs authorities of the country > **Explanation:** Customs authorities of the country usually implement drawback schemes as part of their trade facilitation responsibilities to promote exports. ### What kind of industry can benefit from the drawback system? - [ ] Only the financial sector - [ ] Solely real estate - [ ] Exclusively healthcare - [x] Multiple industries reliant on imported materials > **Explanation:** Numerous industries that rely on imported materials for production and subsequently export finished goods can benefit from the drawback system by mitigating the cost of import duties.
Tuesday, August 6, 2024
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