Pakistan’s jewellery sector seeks resumption of tax incentives

Pakistan’s jewellery sector seeks resumption of tax incentives

ISLAMABAD (INP): Pakistan’s jewellery sector has sought resumption of tax incentives, WealthPK reported on Sunday.
Pakistan’s gems and jewellery sector had demanded the government to reverse recently adopted amendments to Sales Tax Act and immediately resolve its issues for smooth running of the business in the country.
Pakistan Jewellers Association, in a letter, a copy of which is available with WealthPK, has appealed to the National Assembly Standing Committee on Finance for support in reversal of amendments to Sales Tax Act which were recently adopted by the Parliament through Supplementary Finance Act, 2022.
It said that the sale of jewellery was liable to sales tax at the rate of 1.5% on gold, 3% on making and 2% on value of diamonds, but the Finance Supplementary Bill proposed to increase it to normal rates which is 17%.
“We have been engaged with the ministries of finance and commerce for the last few years for the development and documentation of the jewellery sector in Pakistan.
The core objective of the group is to make the jewellery sector of Pakistan more vibrant, documented and compliant, so as to enable it to contribute towards the growth of the country by higher revenue contribution and export augmentation,” it said.
Out of approximately 36,000 jewellers, only 50 plus are registered with sales tax, and such a harsh measure would result in complete closure of this documented sector and fall in revenue.
It further highlighted that in history, even when reduced rate was not there, exemption was available up to 90% of the value. Similarly, jewellery across the globe is taxed at reduced rates i.e., the rate of value added tax (VAT) on jewellery is 3% in India.
Jewellers are of the view that if gold is taxed at normal rates, it will lead the industry towards non-documentation and smuggling of gold which is not going to help the vision of a documented sector in trade.
Also, sales tax registered jewellers are withholding agents under the Income Tax Ordinance, 2001. They are also categorized as tier-1 retailers. Being withholding agents, they are required to withhold tax on their raw material purchases i.e., gold, silver and other precious metals and stones.
These sales tax registered jewellers have to pay withholding tax at the rate of 9% as all the suppliers in the supply chain are non-registered and out of tax net. The competitors are neither required to register under the Sales Tax Act nor are withholding agents.
Therefore, this cost makes registered jewellers financially unviable and uncompetitive.
In Finance Act, 2021 concession of withholding tax under Section 153 has been granted to all sales tax registered persons with turnover up to Rs100 million. The said limit is too low, keeping in view the high value of raw materials being used within thin margins.
Therefore, it suggested, the limit for jewellers may be extended to Rs250 million or alternatively withholding tax at reduced rate of 0.25% may be introduced.
According to Gems, Jewellery and Minerals Task Force, Pakistan has great potential of earning $5 billion annually through the exports of precious stones. The sector can tangibly contribute to the country’s economy and it can also create job opportunities.
However, while talking to WealthPK, a member of the Prime Minister’s Task Force on Gems, Jewellery and Minerals Salman Hanif said under the government’s current policy, the sector cannot increase its exports, and the government should resolve the issues of the sector.
“We cannot import gold and diamond because of weak import policy and heavy taxes. When we will not be able to import gold or related material, then how our exports can be increased? Currently, the rate of withholding tax is high and only registered sector pays tax while unregistered sector does not pay tax. This discrimination must be ended,” he said.
Chairman Federal Board of Revenue (FBR) Dr. Ashfaq recently informed the parliamentary committee that jewellery sector is not paying its due tax. He said that in current circumstances, allowing import of gold can increase pressure on the Pakistani rupee.
“We are in contact with the Ministry of Commerce to resolve the issues of this sector. Import of inputs for the jewellery sector will be allowed and work is in progress in this matter. The imposition of a 17% sales tax on this sector is not high.
Exports figures of this sector for last 15 years are also negligible. We will bring all retailers of this sector into tax net and implement law. Retailers declare fewer sales to hide tax and pay only a few hundred rupees tax. We are bringing improvement in the system which will lead to transparency and efficiency,” he said.
He further said that in the Finance (Supplementary) Act, 2022, the sales tax exemption and reduced rates on import and local sales of articles of jewellery have been withdrawn under the IMF program to remove economic distortions. The committee has sought viable suggestions from the sector to resolve their outstanding issues.

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