8.2 Advance Payments, 120/730-Day Clocks & 0.1% Penalty

Para 30 after EPD Circular Letter No. 01 of 2024

Until 30 January 2024, many advance-import cases still needed a trip to SBP. EPD Circular Letter No. 01 of 2024 changed para 30 of Chapter 13 with immediate effect (advances already made before that letter stay on the old rules). ADs are henceforth allowed to effect import advance payment with appropriate due diligence, without prior approval of SBP, against irrevocable letters of credit or invoices, up to 100 percent of the value of the LC or invoice. The current Chapter 13 PDF incorporates that annex; no later circular opened for this chapter shortened the 120/730-day clocks or changed the 0.1 percent rate, so those figures remain locked.

The 100 percent figure is a ceiling, not a right. Para 30(ii) makes the AD responsible for TBML-style examination before the SWIFT goes out. The amount must commensurate with the customer's profile, the quantity and nature of the goods, and pricing trends in international and domestic markets. The AD must be able to show that goods will arrive in time or that funds will come back in time. That means verifying the bona fides of the beneficiary, not merely filing the importer's word. The importer signs Appendix V-31. The AD may take collaterals or guarantees from the customer or the beneficiary to protect the bank. Skipping those steps because “100 percent is now delegated” is exactly how an AD ends up in a section 23K conversation.

Due diligence before releasing 100 percent

Think of the 100 percent delegation as a conditional power. A Faisalabad spinning mill with a five-year import history, audited accounts, a named European mill as seller, and a price that sits inside published yarn indices is a different file from a new trading concern asking for 100 percent advance to a first-time supplier in a high-risk jurisdiction at a price 40 percent above the same specification on public indexes. Both files are “100 percent against invoice” on the face of para 30(i); only the first is likely to survive para 30(ii).

Minimum AD checks before release, tying into Chapter 4's TBML framework (FE Circular 04 of 2019, revised by EPD Circular Letter No. 08 of 12 August 2025) without repeating that chapter:

• KYC/CDD refresh of the importer as an account holder, including beneficial ownership and the trade risk rating Chapter 13 paras 6A(iii) and 6B(iv) already require (performance history, prior STRs to FMU).
• Beneficiary verification: who is being paid, where they are, whether they are the contractual seller, and whether a third-country beneficiary is actually the exporter (para 8).
• Related-party flag: if the supplier is a parent, subsidiary, or common-control affiliate, price and quantity need extra corroboration; related-party over-invoicing is a core TBML typology.
• Price check: unit price versus international/domestic market trends, as para 30(ii)(a) expressly requires. A “market” printout in the file is not optional colour.
• Quantity and nature versus profile: a small commercial importer should not suddenly be prepaying a full plant; a known industrial importer of spare parts should not suddenly be prepaying finished consumer electronics on the same NTN without a story that withstands scrutiny.
• IPO screen (Section 8.1): do not advance FX for a heading that is banned or that the importer cannot actually clear.
• Incoterm screen (para 5): an EXW advance still needs the extra document-and-insurance conditions; a CIF advance still needs FEOD or a live circular.
• Appendix V-31 undertaking on the file, plus any collateral the credit committee requires.
• PSW/WeBOC: issue the FI (or approve the EIF) on making the advance; set the FI/EIF expiry to commensurate with the 120- or 730-day clock, unless SBP has already approved an extension (in which case the approval number and date go in Remarks).

Para 30(e) then requires a monitoring mechanism after the payment: the importer must not misuse the advance. Tools named in the Manual include filing STRs where TBML is in play and debarring the importer from future advances. Monitoring is not a once-a-year ITRS afterthought; it is a diary of due dates.

The 120-day and 730-day clocks

Para 30(d) is the clock the exam will quote. If the goods against the advance are not imported and/or the funds remitted in advance are not repatriated, within:

• 730 days, in case of plant and machinery, or
• 120 days, in all other cases,

counted from the date of advance payment, the AD must start the interim-penalty machine.

What “import” means for stopping the clock is not the vessel's arrival rumour and not the warehouse gate. It is the Goods Declaration filed by the importer in PSW. What “repatriation” means is funds back into Pakistan. Either event stops the delay period. Short shipment or non-shipment is not an informal write-off: Chapter 13 para 6A(xvi) / 6B(xii)(a)(iii) require the AD to settle the EIF/FI with remarks after repatriation of the advance or the unused balance, and para 30 still applies.

Worked clocks (calendar addition from the payment date; penalty starts the next day after that period lapses):

• Other goods. Advance of USD 80,000 for fabric paid on 1 February 2026. One hundred and twenty days after that date is 1 June 2026. If there is still no PSW GD and no repatriation, the first penalty day is 2 June 2026. If the GD is filed on 20 June, daily penalty runs 2–20 June on the outstanding amount. If USD 20,000 is repatriated on 10 June and the remaining goods are GDed on 20 June, the outstanding used for each day's 0.1 percent drops from 10 June.
• Plant and machinery. Advance of USD 2.5 million for a printing line paid on 15 March 2026. Seven hundred and thirty days after that date is 14 March 2028. Penalty, if any, starts 15 March 2028 and runs until GD or repatriation. Labelling a mixed container “machinery” to grab 730 days when the invoice is mostly spare parts and consumables is a classification abuse; the AD's para 4 IPO/HS duty and para 30(ii) nature-of-goods test both cut against that.

SBP can extend the import period; that extension belongs in the FI/EIF Remarks column with approval number and date (para 6A(ix)(c)). An AD cannot self-extend the 120/730 clocks to be kind to a customer.

Interim penalty: 0.1 percent per day, account 427518, daily market rate

Once the clock has lapsed, para 30(d)(i)–(ii) is mechanical:

Worked PKR arithmetic: outstanding USD 100,000; day 1 market rate 280.00; day's penalty = 0.001 × 100,000 × 280 = PKR 28,000. Day 2 rate 282.00; day's penalty = PKR 28,200. The AD does not freeze day-1's rate for the whole month. At month-end the AD sums those daily PKR amounts and pays 427518. Paying a single 0.1 percent lump on the original PKR equivalent is the wrong method.

The interim penalty is not a substitute for bringing the goods in or sending the money back. It runs until one of those two events. It is also not the final FERA penalty. Para 30(d)(iii) is explicit: on the back of Appendix V-27A and V-27B, FEOD, SBP-BSC may seek more information and may file complaints against the importers with the Foreign Exchange Adjudication Department (FEAD) under FERA 1947. FEAD adjudicates and may impose a final penalty on the importers. Appropriate penal action can also be initiated against the Authorized Dealers under section 23K of FERA 1947 — the same section Chapter 2 of this guide treats as SBP's administrative penalty power (up to Rs 500,000 per contravention plus Rs 10,000 per day continuing, with officers potentially deemed guilty). An AD that neither recovered the 0.1 percent, nor reported V-27A/B, nor followed up the importer is not a bystander.

Appendix V-27A, V-27B, and the 10th of the month

Do not confuse these with Appendix V-27 (the registered-contract certificate in Section 8.1).

• Appendix V-27A — Head/Principal Office of the AD submits a consolidated statement of cases where (a) import has not been effected by the due date, or (b) the advance was repatriated for any reason before the due date of import. Due on the 10th day of the following month, to the Director, FEOD, SBP-BSC.
• Appendix V-27B — A second monthly statement, same deadline, with details of penalty charged, shipments received, and amounts repatriated, if any, against advances already reported outstanding in V-27A.

V-27A is the watch-list. V-27B is the movement report. A case that was never on V-27A cannot quietly appear as “regularised” on V-27B. A case that stays on V-27A month after month with neither GD nor repatriation nor 0.1 percent is an FEOD complaint waiting to happen.

PSW/WeBOC overlays that sit on the same advance

Issuing the advance without the FI/EIF is a parallel breach. On PSW the FI is issued upon making advance payment. The importer later attaches the declaration to that FI. The FI expiry must match the 120/730 rule. The AD may cancel an FI before BDA (for advances) or before attachment to the PSW declaration. After BDA, cancellation is not a casual desktop click. If goods arrive short, the AD settles the instrument after repatriation of the unused balance, with remarks, and still runs para 30 on whatever remains outstanding past the clock. Open-account rules in para 17 do not apply to a true advance: you cannot “convert” a missed 120-day advance into a one-year open-account residual without changing the facts and the mode.

Public-sector importers who need an FX allocation still go through Appendix V-28 at FEOD area offices (para 19) before the AD registers the contract or opens the LC; the 100 percent delegation in para 30 does not let an AD ignore that government-allocation gate.

What the exam wants you to refuse

Refuse the story that 100 percent advance is automatic. Refuse the story that 120 days applies to a genuine plant-and-machinery invoice. Refuse the story that penalty is 0.1 percent once, or per month, or at the original booking rate. Refuse the story that the clock starts on the date of shipment rather than the date of advance. Refuse the story that filing V-27A washes the AD of section 23K. The delegated rule is generous on amount and strict on time, rate, account number, and due diligence.