Duty Drawback Meaning
Duty drawback is the term used in the context of international trade, duty back in simple words refers to that amount that is paid back to the exporter if the exporter has paid excise or import duty on the raw materials imported by him or her for the purpose of exporting the goods which are qualified for duty drawback scheme. Simply put duty drawback is a refund to those exporters who have paid import duty and excise on imported goods and did value addition on those imported goods and then exported those goods to other nations of the world.
Duty Drawback Example
An example of duty drawback is suppose an exported has imported goods worth $50000 and the government has imposed excise of $2000 and import duty of $5000 on imported goods and if the exporter uses the imported goods to produce or manufacture and export it back to other countries than that exporter will be eligible for duty drawback of $7000 that is total of excise duty and import duty which was charged by the government when the exporter had imported goods from other countries.
Duty Drawback as Export Credit
Banks also extend post-shipment credit against duty drawbacks because the exporter does not get back the duty drawback immediately on completion of the export rather the exporter gets back this duty after 1 or 2 months and to tide over the liquidity crises the exporter can apply for export credit with his or her bank and once the exporter has received the duty her or she can repay the amount taken from the bank. In simple words, if the duty drawback amount is small then there is no use of taking export credit however if the drawback amount is large then the exporter can apply for the export credit under the duty drawback scheme of the bank.
Purpose of Duty Drawback
The main purpose behind which the duty drawback is given to the exporters is to ensure that exporters get the incentive to make products for exports from imported goods as well as indigenous goods because in some country government even provide excise duty drawback paid on the purchase of indigenous inputs which in turn will lead to increase in the exports of the country which ultimately will bring more foreign exchange into the country thus improving the foreign exchange position of the company.
As one can see from the above that duty drawback is an important concept as far as international trade is concerned and that is the reason why anyone dealing in international should know everything about this scheme because while the crux of this concept is same across the world however its rules and regulations related to goods which are eligible for drawback as well as the fine print about this facility differ from country to country.