ISLAMABAD: Poor tax compliance in gold and precious stone sectors is causing huge losses to the national exchequer, said a report released by the Federal Board of Revenue’s Directorate General Intelligence and Investigation Inland Revenue.
The findings come at a time when the FBR has notified rules to clamp down on terror financing in the real estate, gems and jewellery sectors as part of its compliance with the Financial Action Task Force (FATF) recommendations.
Although the commerce ministry monitors import and exports of gold, the numbers however do not reflect the actual trade of yellow metal in the country, the report highlighted.
The directorate has identified several grey areas where taxes are almost negligible.
As per the Asia Pacific Group’s (APG) Mutual Evaluation Report of October 2019, the predicate crimes are laundered domestically mainly through real-estate sector, precious metals and gemstones.
The two sectors — the real estate and precious gems and jewelry are termed as medium to high risk in money laundering and terror financing due to lax supervision and regulation.
Data shows that there are 60,000 jewelers across the country. Of these, only 21,396 are registered with the FBR of which only 10,524 filed their tax returns in the tax year 2019. Interestingly, on average 9,000 return filers have made no income tax payments after adjustments of various withholding regime.
The average annual income tax per return filer is estimated at Rs5,964, while jewelers dealing in such metals earn enough income and are required to pay a reasonable amount of tax. On the other hand, during the last five years, the gold prices have increased by over 180 per cent in Pakistan.
It was observed that a large number of jewelers declare income below the taxable limit, which puts the declaration of such taxpayers in doubt.
The tax compliance in the sector is so low that on average 56.56pc of the registered persons have not filed returns during the tax year 2015 to tax year 2019. It clearly reflects that registered taxpayers not complying with the income tax laws.
The current laws do not provide adequate mechanism or documentation required to check the quantum of domestic sales, available stocks with jewellers, manufacturing facilities and customs profiling.
The sales tax compliance in the sector is also pathetic. Data shows that out 21,396 national tax number holders, only 1,080 are registered with sales tax. Of these, on average 157 registered persons are sales tax return filers while the rest are not filing their sales tax returns.
It was recommended that the Ministry of Commerce, FBR and State Bank of Pakistan should review the existing laws to plug loopholes in trade of gold and allied items. It was also proposed that the sector should be given industry status to compete in the international market.
China is the top export destination for Pakistan gemstones, followed by Hong Kong and USA. Huge percentage of Pakistan’s gold jewellery is also concentrated in the UAE.
Pakistan exports of jewellery and gems were as high as $1.62bn in 2012, which fell to around $7m in 2019-20 over the past years.
Source: Dawn, December 20th, 2020