Immediate restoration of sales tax and income tax exemption on gold imported for export of gold ornaments, demands Habib-ur-Rehman

BY: WAQAR HUSSAIN

Due to FBR’s policy and tax measures, the export of gold jewelery from Pakistan is in jeopardy due to which not only Pakistan is losing foreign exchange but also the employment of thousands of people associated with the jewelery sector is affected.

The Prime Minister House along with the Federal Ministry of Commerce and Ministry of Finance had assured to restore sales tax exemption on import of advance gold by foreign buyers for export of gold ornaments which could not be fulfilled in the budget. The 18% sales tax on import of advanced gold by foreign buyers for export of gold jewelery was abolished in February 2024, making it difficult to continue exporting gold jewellery.

After New Tax Initiative, Under the (Entrustment Scheme), exporters have to pay 18% sales tax on the import of advanced gold by foreign buyers, which will be refunded after export, but even for the largest exporter, it is not possible to fulfill this condition of 18% sales tax. This is because on the import of gold worth crores of rupees, crores of rupees have to be deposited as sales tax, which is many times more than the value addition and profit, and then to complete a long and complicated time-consuming procedure for the refund of this sales tax. In this way the capital of the exporters will be blocked.

The export industry of gold jewelery is currently suffering from a severe crisis. Exports are suspended and the 18% sales tax requirement on advance gold purchase from foreign buyers under the Entrustment Scheme scheme by FBR has dashed the exporters’ hopes. Around 100 exporters in Pakistan export gold jewellery, out of which 25 top exporters have decided to shift their business from Pakistan to Middle East and UAE and many have shifted their business to Dubai, which has significantly reduced Pakistan’s exports. According to our estimate, if the sales tax exemption is not restored to the export of gold ornaments, then during the next financial year, the export of gold ornaments, which is $100 million at present, will be reduced to one or two million dollars.

The export situation of gold ornaments is that after the end of sales tax exemption from February 22, not even a gram of gold was imported under the Entrustment scheme for making gold ornaments, but at the same time gold worth 12 million dollars was returned to the buyers. The orders of which were canceled from Pakistan and transferred to India, thus Pakistan had to lose the foreign exchange of more than 5 lakh dollars received in the form of value addition, but the buyer parties also got to India.

Tax cannot be levied on raw material imported for any export industry which has to be processed and exported. International buyers of gold jewelery from Pakistan also took notice of the tax on gold import and indicated to raise this issue at the WTO and WTCO forums, however, Pakistani exporters, considering the reputation of the country, refused to do so, and hold, them up to raise this matter on the WTO platform, it will lead to Pakistan’s withdrawal and Pakistan may also face WTO disciplinary measures.

The gold jewelery industry suffered a sharp decline due to the introduction of SRO 760 in 2013-14 and the export of gold jewelery fell by 95% due to strict conditions and complex procedures imposed through this SRO. The Pakistan Gem and Jewelery Traders and Exporters Association had proposed amendments to SRO 760, which the Ministry of Commerce and the Ministry of Finance agreed to in the budget 2024-25, and also made amendments to SRO 760 to reduce the difficulties faced by exports. A promise was made which was not fulfilled in the new budget.

If the Federal Ministry of Finance does not restore the sales tax exemption on advance gold from foreign buyers imported for export of gold jewelery and does not implement the proposed amendments to SRO 760 agreed by the Federal Government itself. Then export of gold jewelery from Pakistan will be completely stopped, which will affect the families of 10,000 gold jewelery artisans along with the loss of valuable foreign exchange.

On one hand, the federal government is desirous of increasing exports and development of export-oriented industries, but the other hand, negative policies are being adopted for exporting industries without consultation. During the period in which the export of gold jewelry from Pakistan decreased by 95%, the export of gold jewelry from Turkey increased from 4 billion dollars to 13 billion dollars, while the export of India increased from 32 billion dollars to 42 billion dollars.

In the federal budget, the fixed rate regime of exports was abolished and 29% tax was imposed. This move will affect the gold jewelery export sector like other export sectors. Increasing direct contact between tax authorities and taxpayers will increase difficulties for taxpayers, they will face harassment and a new era of corruption and bribery will begin. 29% tax on export profits will cause destruction of exports. We have also conveyed our concerns to all the parliamentary parties on this proposal and have sent letters to the parliamentary leaders demanding that it be condemned in the budget session and the proposal of 29% tax on exports removed from the budget proposals.