Cheating the tax-man: Gold traders drain precious foreign reserves

Published: August 7, 2013

some jewellery dealers were behind the rapid surge in gold imports under the duty-free gold import scheme, which is governed by a statutory regulatory order (SRO).

KARACHI: 

There has been a sudden surge in gold imports in recent months. The rush to import the precious metal was so intense that the apex decision-making body for economic issues, the Economic Co-ordination Committee (ECC) of the cabinet, had to intervene at the end of the last month to ban the import of gold for a 30-day period.

Pakistan imported gold worth $346.2 million in fiscal 2013, up a massive 101.7% from fiscal 2012 when the import bill for the same commodity was to the tune of $171.6 million. The rise was all too meteoric in the month of June alone when gold worth $40.2 million was imported as opposed to gold imports of $14.5 million in the corresponding month of last year, reflecting a rise of 176.1% on a year-on-year basis.

So what exactly was causing the gold import spree in Pakistan?

Apparently, some jewellery dealers were behind the rapid surge in gold imports under the duty-free gold import scheme, which is governed by a statutory regulatory order (SRO). Ordinarily, jewellers are allowed to import gold as much as they please, provided they declare it at customs and pay the required duty. But the SRO allowed jewellers to import a proportionate amount of gold without paying the duty against the value of jewellery they had exported in the preceding eight months.

“It is wrong to assume that Pakistan exports jewellery. Nowhere in the world can we find made-in-Pakistan jewellery – be it Saudi Arabia, Dubai or the United States,” said Acting Managing Director Pakistan Mercantile Exchange (PMEX), Amjad Khan while speaking to The Express Tribune.

“They showed on paper that they have exported jewellery and then imported gold against it without paying any duty, causing a disproportionate surge in gold imports. The imported gold later sold locally and was also smuggled to India,” he added.

Khan says other unscrupulous elements are also taking benefit of the regulatory loopholes by sending dollars abroad under the pretext of gold exports. “People can’t send dollars abroad without getting on the radar of regulators. So they simply ask jewellers to purchase gold on their behalf, which is then exported in the form of bangles. They are converted back into gold bars once they reach Dubai,” Khan noted. “That’s how the dollar is getting out of Pakistan,” he added.

Indeed, data suggests the decline in Pakistan’s foreign exchange reserves in recent months is mainly on the back of increased imports. In the last week of July, Pakistan’s total liquid foreign exchange reserves decreased to $10.2 billion, down 7.2% from the preceding month. Speaking to The Express Tribune in an interview last week, Elixir Securities Vice President Muhammad Azfer Naseem had noted that gold imports were one of the primary reasons for the decline in foreign exchange reserves of almost $800 million in one month.

Karachi Saraf and Jewellers Group President Haji Haroon Rasheed Chand was not available for comment. His associates at the jewellers’ representative body declined to speak on the matter.

Published in The Express Tribune, August 8th, 2013.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

Reader Comments (8)

  • Nadir
    Aug 7, 2013 - 11:07PM

    The rich have the gold and the dollars. Inflation caused by imported inflation as imports become dearer will break the back of the masses as the incidence of inflation is greatest on the poor. Anyone care? Nope.

    Recommend

  • Parvez
    Aug 7, 2013 - 11:19PM

    Don’t fool yourself………..it takes two hands to clap.Recommend

  • Sodomite
    Aug 7, 2013 - 11:52PM

    They are law abiding citizens taking advantage of lacuna’s in the tax system. They are not cheating anyone. If they were the taxman will offer advice on how to cheat. Its our national character. Look at how the state has been ripped-off by State Ministers and PMs in the last 60 years. We have Judges sons cheating the state too. So please don’t call honest gold traders “Cheating the taxman”.

    Recommend

  • syed baqar ahsan
    Aug 7, 2013 - 11:56PM

    we are cheats in all dimensions now lot of being heard about import of high bread cars and that too by a firm owned by Saif ur Rehman our finance minister he is the same man who got SRO issued for few hours cleared his large number of BMWs from custom and in the afternoon SRO was withdrawn during last government in 1998-99.Gold is also being important same type of rogues.No body can beat us in cheating but still remain regular in our 5 prayers.

    Recommend

  • Usman Lakhani
    Aug 8, 2013 - 12:38AM

    This doesn’t make any sense. If gold is exported dollars should come in not go Out! Are you sure this is correct?

    Recommend

  • Talha Siraj
    Aug 8, 2013 - 1:02AM

    before import sanctions gold smugglers make hefty money by smuggling it to india where reserve bank of india have raised custom duty on gold imports from 6 to 8 % this stance was taken by the res bank to defend rupee against USD and unfortunately this would turn the table in our side that we lost around 6 % of our rupee value against USD due to high demand of dollars in the interbank and open market and denting our fx reserves. FX postion will become improve in the coming days from IMF $ 6.3 billion EFF program, US trade Treaty (PVT Oversees Corporation will be investing $2 billion in the education and energy sector .As far as $14 billion remittances from the banking channel are concerned which provides a cushion to the current account , a moderate growth was observed in remittance in the FY 2013 with a shortfall of $6billion due to Hawala racket

    Recommend

  • Ch. Allah Daad
    Aug 8, 2013 - 2:05AM

    It does not make a business sense. Gold throughout world is traded at the fixed international market price. Suppose a trader buys gold abroad at $1300 per ounce, then imports in Pakistan (add import expenses), makes bangles (add manufacturing expenses), exports out of the Pakistan (add export expenses), then turns bangles into gold (add another expense) and sell again at $ 1300 per ounce. In Pakistan no one will take so much trouble to send dollars abroad. There are other means which are less expensive.
    In my view Gold is in high demand because its price is down more than 25% than its peak price and traders/investors are pouring huge amounts into gold which is one of the reasons for its high imports.

    Recommend

  • zulfiqar
    Aug 8, 2013 - 6:14AM

    And FBR and it’s field officers were sleeping

    Recommend

More in Business