Exporters and Government Caught in the Crosshairs

EghtesadOnline: Head of the Tehran Chamber of Commerce, Industries, Mines and Agriculture again faulted stringent CBI rules that govern the repatriation of export earnings.

News ID: ۷۸۵۶۳۰

17 September 2020

In a meeting with chamber members on Tuesday, Masoud Khansari pointed to three flaws with the controversial earnings’ repatriation rules.

Firstly, the rules oblige exporters to bring back earnings within four months from the date of export. “Our proposal was to extend the timeline to six months. Revenue repatriation takes time,” he was quoted as saying by IRIB news.

Due to the US economic sanctions export companies are finding it increasingly difficult (impossible) to bring their money back home via banks because most foreign financial institutions, fearing Donald Trump’s wrath, refuse to handle Iranian transactions.

Under the new government rules, an earlier provision has been scrapped based on which export companies were allowed to use their overseas earnings to import goods and raw materials for their manufacturing units.

“To secure money for importing raw materials, export companies have to wait for weeks for the foreign currency. This increases costs,” Khansari rued.

Last, but not the least, is the issue of value added tax, which was granted as an incentive to compliant exporters.

As per previous regulations, exporters could demand the refunding of VAT within a month after the shipment of goods. The new rules, however, allow the Iranian National Tax Administration to refund exporters VAT after they fulfill all their financial commitments, namely the currency repatriation.  Delays mean that INTA holds exporters money creating more obstacles in their way.

According to Khansari, because the relevant administrative bodies, with their cumbersome regulations, are not integrated, exporters face added problems in VAT refunding “even after meeting their forex commitments”.

CBI Tightens Rules

The Central Bank of Iran has tightened rules guiding forex earnings repatriation for the current fiscal year (March 2020-21). Its rules announced in July say all non-oil exporters must bring back at least 80% of their earnings in “foreign exchange hawala” and maximum 20% in hard currency. The proceeds must be sold via the secondary forex market to banks and authorized exchange bureaus.

In the new rules, however, the regulator does not differentiate between petrochemical exporters and other exporting firms.

Manufactures that double as exporters are allowed to use maximum 30% of the overseas earnings for their import needs, but need to sell the remaining in forex hawala in the secondary market, known locally as Nima.

Comparing the new and old rules, it appears that the CBI has made its rules and procedures more stringent and tightened restrictions for exporters.

In the past, exporters were required to sell at least half of their export earnings in the secondary market. Petrochemical companies were obliged to bring back at least 60% and sell it via Nima.

Past rules stipulated that at least 20% of the total proceeds sold in the secondary market must be in cash, and the balance could be used to import goods, machinery and equipment either by the exporting firm or a third party.

The government tightened the rules after persistent shortages of foreign currency caused turmoil in the domestic market. Senior officials say export companies have refused to “return $27 billion in overseas earnings in the past two years” and the government is struggling to convince them to bring the money back.

Many exporters understandably take issue with the fact that they cannot transfer the money to Iran simply because there is no banking channel to do so.

The tough US penalties have literally cut off Tehran’s banking ties to the international banking network to the extent that the government too cannot transfer its oil export revenue home from most countries.