MONDAY EXPORT CLASS
With
DR GODWIN OYEFESO (SUCCESSEDGE EXPORTERS NETWORK)
Topic: Foreign Exchange Regulations and Formalities
Both exports and imports involve foreign exchange. Export results in receipt of foreign exchange and import results in payments for purchases made. As and when exports are made, there are incidental remittances involving foreign exchange in the context of participation in trade fairs, agency commission, subscription for trade magazines, sales promotion tours, advertisements in the foreign media etc. All the transactions fall in current account, which are necessary for the purpose of export business. Investment abroad, lending and borrowing money and purchase of plant and machinery fall in capital account. It is necessary for exporters as well as importers to have good understanding in respect of regulations relating to foreign exchange. Regulations relating to foreign exchange are known as Exchange Control Regulations. Knowledge of these regulations is necessary to work within the purview of law.
EXCHANGE CONTROL
Exchange control means regulating the demand and supply of foreign exchange with the objective of rationalising the use, to meet the priorities laid down in the policy, from time to time. Exchange control covers both receipts and payments of foreign exchange. The objective is to pool exchange reserves for conservation, at the time of receipts and judicious use, at the time of payments.
FERA, FEMA AND EXCHANGE CONTROL REGULATIONS
Reserve Bank of India is the Exchange Control authority in India. RBI frames the exchange control regulations.
The Foreign Exchange Regulations Act, 1973 (FERA 1973), as amended by the Foreign Exchange Regulation (Amendment) Act, 1993, which formed the statutory basis for exchange control in India, stands repealed from the first of June 2000. From this date, the FEMA 1999 forms the statutory basis for Exchange Control and Management in India. Government of India has notified that FEMA shall come into force from 1-6-2000. All foreign exchange transactions taking place on and from this date are governed by the provisions of FEMA 1999, the Rules, Regulations, Notifications/directions or orders made or issued there under.
Basic Difference in Approach
The objective of FERA was to conserve foreign exchange and put them to judicious utilisation. The focus of FEMA is to facilitate external trade and payments and to promote and maintain an orderly growth of foreign exchange market, in India. FEMA has diluted the rigorous enforcement provisions that were the hallmark of the erstwhile legislation. The FEMA is more transparent in its application.
MAIN PROVISIONS OF FEMA
The Act provides:
- The amount representing the full value of goods exported should be realised and paid to the authorised dealer on the due date for payment or within a period of six months from the date of shipment, whichever is In case of exports of software in non-physical form, the period is reckoned from the date of invoice. This period restriction is not applicable in respect of shipment made on deferred payment terms or consignment basis.
- Ceiling on agency commission at 12.5% of FOB value has been abolished with effect from 1st June 2000, date when FEMA has come into
- Residents going abroad for business purposes or attending seminars or participating in conferences can avail foreign exchange up to $ 25,000 per trip, without the approval of Period of stay is immaterial.
- Under the liberalised exchange rate management system, exporters are permitted to maintain foreign currency balances in separate foreign currency accounts known as ‘Exchange Earners Foreign Currency’ (EEFC) e.f. 1-3-1994.
- Merchant/ Manufacturer Exporter : 50%
- 100% EOU/EPZ unit : 70%
- SEZ Unit : 100%
- Status Holder Exporter : 100%
- Indian companies engaged in certain specified sectors are permitted to acquire shares of foreign companies, engaged in similar activities or issue ADRs/GDRs up to certain specified
- FEMA is a civil law unlike FERA. Contravention under FEMA will be dealt with through civil procedures. FERA presumes everyone accused as guilty of the crime and the accused has to prove his innocence. Whereas in FEMA, no such assumption Like any other civil case, the prosecution has to prove that the person had committed the offence. Arrest could be made under FERA. This stringent provision of arrest has been deleted under FEMA.
TO BE CONTINUED……
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