Jewellery sector: ECC forms body to prepare viable plan

ISLAMABAD: The Economic Coordination Committee (ECC) of the caretaker Federal Cabinet has constituted an inter-ministerial committee to prepare viable plan for the jewellery sector, including enhancement of tax collection, sources in the Commerce Ministry told Business Recorder.

On February 14, 2024, the Ministry of Commerce briefed the ECC that the imports or export of precious metals, gemstones and jewellery made up of precious metals and gemstones or a combination thereof was allowed under Entrustment Scheme and Self-Consignment Schemes contained in SRO 760(1)/2013 of September 02, 2013.

The Entrustment Scheme provided a procedure for export of jewellery against imported precious metals supplied as partial advance payment by the foreign buyer. The Self-Consignment Scheme allowed export of jewellery made from locally procured precious metals and gemstones. Moreover, general import of gold in bulk quantity was allowed under serial 16, Part-II of Appendix-B of Import Policy Order, 2022, subject to the condition that importer would arrange his own foreign exchange for the purpose.

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Certain exporters of jewellery had been raising concerns on the prevalent regulations that they were trade restrictive and resulted in reduced exports of the sector.

It was stated that SRO 760(1)/2013 was put into place replacing SRO 266(1)/2001 after several instances of misuse were reported and the export figures of 2012- 13 were found to be based on certain irregularities and fake transaction for which enquiries were also initiated by the FIA.

The Ministry of Commerce on the direction of the Federal Tax Ombudsman in an own motion case constituted a “Gem and Jewellery Committee” on March 05, 2021, to review these regulations under SRO 760(1)/2013 and to facilitate trade in gems and jewellery. The committee held several meetings and deliberated issues related to SRO 760(1)/2013 in detail before firming up its recommendations for amendments in it. A renewed public and private consultation was held on January 04, 2024, in the Ministry of Commerce to discuss the recommendations of the Committee.

In light of the decisions made in the consultative session, the following amendments were proposed in SRO 760(1)/2013 and the Import Policy Order, 2022: (i) under the Entrustment Scheme, the export of jewellery to third party (or parties) in abroad may be permitted under “contractual terms and conditions”. To ensure transparency and traceability, the third party should be named in the sales contract advance; (ii) under Entrustment Scheme, for the purpose of import of gold the requirement of depositing “1% Cash Margin” with the bank may be replaced with the following requirements for the category-wise gold jewellery exporters: (a) Category A: An exporter of gold jewellery with average annual export performance of Rs50 million (equivalent to $ 178,347) or more in the last three fiscal years shall provide indemnity bond; (b) Category B: An exporter of gold jewellery with average annual export performance of less than Rs50 million and more than Rs20 million in the last three fiscal years shall provide revolving insurance and; (c) Category C: An exporter of gold jewellery with average annual export performance of 20 million rupees or less in last three fiscal years shall provide bank guarantee; (iii) in line with minimum value addition norms of regional competitors in the international market, the minimum value addition norms for jewellery exports from Pakistan are proposed to be revised as follows, i.e., four per cent on bangles and chains; six per cent on other plain jewellery; and nine per cent on studded or embedded jewellery; (iv) Sales tax exemption provided under the SRO for the imports of raw materials, tools, machinery and equipment required for production and export of items of jewellery, was taken away in the Finance (Supplementary) Act, 2022. In order to facilitate duty and tax-free imports of machinery and equipment for up gradation of the industry for exporters, it is proposed that such imports may be brought under the Export Facilitation Scheme, run by the FBR. To this effect, the FBR shall develop an enabling provisions; (v) Sales tax exemption provided under the SRO for the imports of law materials, tools, machinery and equipment required for production and export of items of jewellery, was taken away in Finance (Supplementary) Act, 2022. In order to facilitate duty and tax-free imports of machinery and equipment for up gradation of the industry for exporters, MoC proposed that such imports may be brought under the Export Facilitation Scheme, run by FBR. To this effect, the FBR shall develop enabling provisions; (vi) on the recommendation of private sector, under Self-Consignment Scheme the export of gold in the form of jewellery is proposed to be capped at 25kg on revolving basis. The mechanism for implementing this cap may be devised in consultation with the FBR and the SBP; (vi) to avail e-Commerce opportunities, under Self-Consignment Scheme online B2C sale of jewellery may be allowed up to the value determined by SBP from time to time; and (vii) The SECP and the SBP shall devise a procedure for import of silver/gold in bulk and provide for a certain percentage of imported silver/gold to exporters.

The forum was apprised that Section 3(1) of the Imports and Exports (Control) Act, 1950, empowers the Federal Government to prohibit, restrict or otherwise control the import into and export from Pakistan of any good or class of goods.

Approval of the ECC was solicited to the proposal contained in Para-3 of the jewellery (under Self-Consignment Scheme of SRO 760(1)/2013). To this effect, at Serial 16 Part-11 of Appendix-B of Import Policy Order, 2022, the condition “importer shall arrange his own foreign exchange purpose” was proposed to be substituted with as per the procedure notified by SECP/SBP from time to time.

The forum was apprised that Section 3(1) of the Imports and Exports (Control) Act, 1950, empowers the Federal Government to prohibit, restrict or otherwise control the import into and export from Pakistan of any good or class of goods.

During the ensuing discussion, it was observed that UAE and India were earning huge forex from export of jewellery, precious metals and gemstones; whereas Pakistan’s total export value in this regard had gradually been dwarfed. There was a huge potential in export of such items, which needed to be tapped.

On the other hand, it was also pointed out that jewellery sector in Pakistan was one of the biggest tax evaders as no significant tax collection from this sector had been reported. It was emphasized that the said sector should be brought in tax net effectively by corporatising the sector.

It was also pointed out that this matter was related to domestic commerce and should be dealt accordingly. The forum agreed that there was a potential in the jewellery sector and in order to tap this potential on a sustainable basis a committee was needed to be constituted.

After a detailed discussion, the ECC constituted a committee comprising secretary Commerce Division (Convener), chairman SECP (co-convener), chairman FBR, and representative from the Law and Justice Division to deliberate on issues of the jewellery sector in a holistic manner and bring viable recommendations thereon including proposals for enhancement of tax collection from this sector, to the ECC.

Copyright Business Recorder, 2024