Cabinet’s nod sought for VAM revision

ISLAMABAD: The Minister for Commerce, Jam Kamal Khan, has directed the ministry to move a summary to the federal cabinet seeking approval for revision of the value-addition mechanism (VAM) linked to international gold prices, as agreed by stakeholders, including the State Bank of Pakistan (SBP).

The Commerce Minister issued these directions to Joint Secretary Commerce (EXIM) Waqas Azeem after he briefed the minister on issues being faced by the gold jewellery industry. Chairman National Assembly Standing Committee on Commerce Jawed Hanif Khan and Committee Member Gul Asghar Khan stressed the need for resolving the agreed issues.

The committee chairman also requested the Commerce Minister to personally convene a meeting of all concerned stakeholders on contentious issues to evolve a middle ground.

According to the Joint Secretary Commerce, the Gems and Jewellery sector has raised three major issues, adding that the one issue relates to revision of value addition for value-added gold products.

Official documents available with Business Recorder reveal that representative of Golden Arts Manufacturers and Exporters of Artistic Gold Jewelry, Arif Patel, raised the issue of value addition linked to international gold prices under SRO 760(I)/2013. He said that since issuance of the SRO in 2013, gold prices had increased significantly, from approximately USD 1,380 per ounce to around USD 5,100 per ounce, an increase of about 400 percent.

He argued that the existing mechanism, which links value addition to the price of gold, was no longer aligned with international practices and was adversely affecting exports. He proposed that value addition be fixed on a per-gram basis rather than as a percentage of the value of gold.

The industry proposed value addition of USD 1.50 per gram for plain bangles and chains, USD 2 per gram for other plain jewellery and USD 4 per gram for studded or embedded jewellery.

The SBP representative endorsed the proposal, stating that the central bank had no reservations about determining value addition either on a percentage or per-gram basis. He clarified that SBP had not issued any written position mandating a percentage-based mechanism.

However, the representative of the Ministry of Industries and Production was of the view that the existing percentage-based system should be retained, although the percentage limit could be reduced and aligned with regional practices.

Overall, stakeholders agreed that the value-addition mechanism needed rationalisation. It was subsequently proposed that value-addition norms be revised and fixed on a per-gram basis at USD 2 for plain gold jewellery, USD 3 for plain gold chains and USD 5 for studded gold jewellery.

The second issue concerned the applicability of sales tax on imports of precious metals under SRO 760(I)/2013.

The meeting was informed that imports of precious metals under the SRO were intended to be exempt from all duties and taxes, including customs duty, additional customs duty and withholding income tax under relevant laws. However, the Sales Tax Act had not been fully aligned with this exemption framework.

At present, only gold imported under the Entrustment Scheme is exempt from sales tax under Serial No. 178 of Table-1 of the Sixth Schedule to the Sales Tax Act, while imports under the Self Consignment Scheme and unsold jewellery remain subject to 18 percent sales tax.

To remove this inconsistency, it was proposed that the exemption entry at Serial No. 178 be amended to read “Import under SRO 760(I)/2013” instead of restricting it to the Entrustment Scheme. Alternatively, the reference to the Entrustment Scheme could be omitted altogether and SRO 760(I)/2013 cited as the sole basis for exemption.

All stakeholders agreed with the proposal and decided to pursue the matter before the relevant forum.

The Joint Secretary Commerce said that the FBR had agreed to address the sales tax issue in the federal budget 2026-27, but no change had ultimately been made in the budget.

The third issue related to the realisation of export proceeds.

Under the existing framework, exporters are required to realise at least 50 percent of export proceeds in foreign exchange through normal banking channels, while the remaining 50 percent may be realised either in foreign exchange or in the form of precious metals.

The private sector highlighted that gold prices and the US dollar exchange rate remain subject to constant fluctuations, while a significant disparity often exists between domestic and international gold prices, resulting in financial losses for exporters.

The industry proposed abolishing the existing condition and allowing exporters to realise up to 100 percent of export proceeds in gold, arguing that this would enhance export potential.

While most stakeholders supported the proposal, the SBP representative favoured retaining the existing 50:50 arrangements and did not support allowing 100 percent realisation in gold. He suggested that the proposal be formally shared with SBP for its views and comments, after which the central bank would provide a written response.

The Joint Secretary Commerce said SBP had not agreed to the proposal regarding realisation of export proceeds and, in fact, wanted the entire export proceeds to be remitted to Pakistan in dollars.

The meeting concluded that a comprehensive policy was required to address issues relating to the import of gold and export of jewellery.

After detailed discussion, it was decided that the Commerce Ministry would move a summary to the federal cabinet seeking approval for the revised value-addition mechanism for gold products.MUSHTAQ GHUMMAN