ISLAMABAD: The Pakistani government is struggling to regulate millions of dollars of informal gold business in the country by bringing jewelers into the tax net to fulfil one of the conditions of the Financial Action Task Force, officials said on Wednesday.
The global financial watchdog placed the country on its grey list in June 2018 for deficiencies in its system to counter practices like terror financing and money laundering.
Since then, Pakistan has largely addressed 26 out of 27 items on the action plan it first committed to after being placed on the list.
The FATF has been pressing Pakistan to regulate all its businesses and economy to minimize chances of money laundering and terror financing through informal sectors like gold business and prize bonds.
The country has already restricted the buying and selling of the bonds in unconventional ways and now turned its eye toward the gold business.
“It [the gold] is one of the most unregulated sectors that need to be regulated. A directorate-general has been constituted for this purpose,” Syed Nadeem Hussain Rizvi, a Federal Board of Revenue (FBR) member, told Arab News on Wednesday.
He said the directorate-general was working on a regulation mechanism to make the gold business part of the country’s formal economy.
“The FATF is concerned about regulation of such businesses,” he added.
Jewelers and gold businessmen have been resisting the FBR decision to document the sector, saying it would lead to their harassment and curtailment of the business unless the government made a more holistic effort to digitize the overall economy.
President of All Sindh Sarrafa Jewelers Association Haroon Rasheed Chand said he had called a meeting of goldsmiths and jewelers on Friday to discuss the issue.
“We have been regularly paying all income and sales taxes, but even then we are harassed in the name of informal business,” he said while talking to Arab News.
Chand maintained different government agencies were forcing the jewelers to reveal their gold and jewel transactions worth Rs2 million or more, “creating panic in the market.”
“We are ready to cooperate with the government in its efforts to remove its name from the FATF grey list, but the authorities should not force small gold shops to register for sales tax because this will adversely impact their business,” he added.
Economists and experts believe that black money worth millions of rupees can be easily converted into gold and prize bonds and kept anywhere without legal ownership. They said the government agencies could not determine the ownership of gold and jewelry due to loopholes in the current legal system and mechanisms.
“The government will face resistance from the informal sector, but it should go ahead with its plan to document the economy and register all jewelers and gold businessmen,” Syed Atif Zafar, chief economist at the Topline Securities, told Arab News.
He said the country had already tried to document the real estate sector and stock market.
“The government has taken a good initiative, though it will take some time to materialize,” Zafar added. “The documentation of the gold sector is not just important to fulfill the FATF condition but also to increase the country’s tax base.”