Drawback

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

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