Gold market: CCP conducts ‘competition assessment study’
ISLAMABAD: The multi-layered tax regime on gold transactions, combined with weak enforcement and a lack of integration between federal and provincial systems, has allowed many traders to operate outside the formal economy.This has been mentioned in the “Competition Assessment Study on the Gold Market in Pakistan” conducted by the Competition Commission of Pakistan (CCP).“The patchwork of Statutory Regulatory Orders of the Federal Board of Revenue (FBR) has created overlaps and confusion in the gold industry. The tax regime is complex and inconsistent, discouraging formal participation and incentivizing smuggling and under-invoicing,” it added.READ MORE: $8bn–$12bn of Pakistan’s gold trade hides in the shadows: CCPCurrently, the market is regulated through a fragmented set of rules and agencies - ranging from the Ministry of Commerce (e.g., SRO 760), the FBR (e.g., taxation and AML regulations), and the SBP (e.g., import controls), to various provincial authorities and trade associations. This disjointed structure creates regulatory overlaps, policy contradictions, and jurisdictional ambiguities that complicate compliance for market participants. Without a clear chain of command or cohesive regulatory roadmap, traders face conflicting requirements on documentation, taxation, and trade authorization, all of which raise the cost and complexity of doing business.The report revealed that Pakistan’s gold market operates under a complex regulatory framework involving multiple institutions, including the Ministry of Commerce (MoC), Federal Board of Revenue (FBR), State Bank of Pakistan (SBP), Trade Development Authority (TDAP), and Pakistan Gems & Jewellery Development Company (PGJDC). Key regulations governing the sector include SRO 760(I)/2013 for import/export controls, SRO 924(I)/2020 for AML/CFT compliance, and SRO 297(I)/2023 establishing differential tax rates. The Sales Tax Act 1990 imposes a 17 percent tax on gold imports (with exemptions under entrustment schemes) and a reduced 3 percent rate for domestic jewellery manufacturing, while the Income Tax Ordinance 2001 applies withholding taxes and presumptive taxation. This fragmented oversight, combined with high compliance costs and weak enforcement of hallmarking standards, creates market distortions that favor informal trade and smuggling. The recent suspension of SRO760 has further exacerbated regulatory instability, highlighting the urgent need for policy harmonization and stronger institutional coordination to promote transparency and fair competition in Pakistan’s gold market.The financial burden on exporters is exacerbated by excessive regulatory requirements. The 1 percent cash margin imposed on imports ties up working capital, particularly affecting small and medium enterprises (SMEs). Additionally, duplicate taxation - such as withholding tax on exports and cash withdrawals - erodes profit margins. The high cost of obtaining ATA Carnets (an internationally recognized customs document) through third parties, rather than government issuance, adds unnecessary expenses. Furthermore, mandatory random testing of jewellery by customs authorities often results in damaged goods and shipment delays, increasing costs and discouraging formal trade.The study revealed that the Federal Board of Revenue (FBR) acts as Pakistan’s primary fiscal regulator for the gold market, overseeing taxation, customs enforcement, and anti-smuggling efforts (FBR). Its regulatory framework is based on key laws such as the Income Tax Ordinance, 2001, the Sales Tax Act, 1990, and the Customs Act, 1969, along with periodic Statutory Regulatory Orders (SROs). While the FBR has established mechanisms to monitor gold transactions, its effectiveness is often undermined by structural and operational challenges.The FBR imposes a multi-layered tax regime on gold transactions to reduce evasion and bring informal businesses into the tax net.Under the Income Tax Ordinance, 2001, Section 148 mandates withholding taxes on gold purchases, while Section 181 requires gold traders and jewelers to register and file returns. However, compliance remains inconsistent, particularly among small-scale traders and in informal markets like sarafa bazaars, whereUnder reporting is widespread. The Sales Tax Act, 1990 imposes a 18 percent tax on gold jewellery. The section 21 mandates record-keeping, but enforcement gaps allow undocumented trade to persist.In regulating gold imports - a critical function given Pakistan’s reliance on foreign gold - the FBR uses the Customs Act, 1969 to levy duties (adjusted via SROs like SRO 598(I)/2023) and combat under-invoicing (Section 32). While Section 18 allows duty adjustments to stabilize the market, and Section 16 permits confiscation of smuggled gold, porous borders with Afghanistan and Iran continue to facilitate illegal inflows.The FBR coordinates with the State Bank of Pakistan (SBP) on foreign exchange controls, sometimes restricting imports to conserve dollar reserves. Yet, these measures often lead to supply shortages and price volatility, highlighting the limitations of reactive policies, it maintained.To counter informal trade, FBR has introduced measures like mandatory CNIC reporting for high-value purchases, electronic monitoring via the Track and Trace System (SRO 1047(I)/2022), and cash transaction reporting under section 21A of the Income Tax Ordinance. However, weak enforcement and lack of integration between federal and provincial systems allow many traders, especially in rural areas, to operate outside the formal economy.The FBR collaborates with the SBP, SECP, and MoC on broader economic policies, such as tax amnesty schemes (2019 Asset Declaration Scheme) and joint oversight under the Foreign Exchange Regulation Act, 1947. However, these initiatives have seen limited long-term success due to corruption, complex tax structures, and weak enforcement.Copyright Business Recorder, 2026
