Pakistan mulls incentives for Gems and jewelry sector in upcoming budget

Pakistan government is considering a comprehensive incentive package for long-neglected gems and jewelry sector to revive exports and make the industry globally competitive.

Pakistan is home to the fifth-largest reserves of precious metals in the world and has an annual consumption of up to 200 tons.

Despite its natural wealth, the country's jewelry exports have plummeted to just $17.8 million in 2024, a significant fall from $1.18 billion in 2012–13 due to inconsistent policy support and higher taxes, an official said.

Sources revealed that approximately $5 billion worth of precious metal is being smuggled out of Pakistan to Thailand each year. Thailand, leveraging its advanced processing facilities and global branding, transforms this raw material into value-added jewelry, achieving $18 billion in exports in 2024.

“This is not just a loss of revenue — it’s a missed economic opportunity of monumental scale,” a senior official familiar with the matter said.

To address these issues, the federal government is preparing a set of sweeping reforms as part of the budget 2025–26, which aims to revitalize the jewelry sector and stem the flow of precious materials through illegal channels.

Sources told Nukta that the Federal Board of Revenue (FBR), Ministry of Commerce, and Trade Development Authority of Pakistan (TDAP) are jointly finalizing key proposals designed to streamline regulatory procedures, reduce tax burdens, and enhance the competitiveness of Pakistani jewelers in global markets.

One of the main recommendations is to revise the value addition norms by fixing them in absolute rupee terms rather than relying on percentage-based calculations, which fluctuate with volatile global gold prices.

Under the proposed changes, value addition norms would be set at PKR 100 per gram for gold bangles, PKR 150 per gram for other plain jewellery, and PKR 200 per gram for studded or embedded pieces.

To simplify documentation under the Entrustment Scheme, TDAP may waive the requirement for contracts to be notarized and attested by foreign and Pakistani missions — a cumbersome process that has deterred foreign buyers. Instead, it is proposed that contracts be verified via email with the original copy presented upon the consignment’s arrival.

Exporters may also be allowed to bring in 100% of the gold content either in physical form or as foreign exchange. However, they have sought relief on taxation, suggesting that withholding tax (WHT) and export development surcharge (EDS) should be levied only on value addition, not on the value of gold or wastage. This, they argue, would prevent export costs from surpassing profit margins, which typically range between 3% to 5%.

Another major concern is the application of 18% general sales tax (GST) on imported gold under SRO 760(I)/2013. The industry has proposed that exemption under Entry No. 178 of the Sixth Schedule be expanded to cover unsold jewelry as well, ensuring that all schemes under the SRO benefit from the GST relief.

Additionally, jewelers have flagged an inconsistency in the domestic tax structure: while they pay 18% GST when purchasing gold locally, they are only allowed to charge 3% GST on sales to local customers. This mismatch, industry insiders claim, renders local operations financially unviable.

To address this, the gems and jewelry development authority has proposed either the reinstatement of Entry No. 37 in the Sixth Schedule, which previously allowed for GST exemption, or the introduction of a reduced 1% sales tax rate for local gold purchases under the Fifth Schedule.