TMU 07409:TAXATION II

CUSTOMS PROCEDURES
Lecture ONE
CUSTOMS VALUATION OF IMPORTED
GOODS

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CUSTOMS VALUATION OF
IMPORTED GOODS
 Definition
 Customs valuation is a customs procedure
applied to determine the customs value of
imported goods. If the rate of duty is ad
valorem, the customs value is essential to
determine the duty to be paid on an
imported good.
 What is customs value?
 The customs value of imported goods means
the value of goods for the purpose of levying
ad-valorem duties of customs on imported
goods
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Specific and ad valorem
customs duties
Customs duties can be designated in either
specific or ad valorem terms or as a mix of the
two.
Under specific basis, customs valuation is not
needed and the value of imported goods does
not need to be determined, as the duty is not
based on the value of the good but on other
criteria.
an ad valorem duty depends on the value of a
good
 Under Ad Valorem
 Customs duty = customs value × Customs duty
rate

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Importance of the customs
valuation methods
 To facilitate international trade by having
common way of valuing goods for
customs purposes
 To simplify international negotiations and
comparisons of international trade
statistics

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Background on Customs
valuation Methods
1.Brussels definition of value(BDV)
 Normal market price, defined as the price
that a good would fetch in an open market
between a buyer and seller independent of
each other”, was determined for each
product, according to which the duty was
assessed
 Shortfalls of BDV
 New and rare products were often not
captured in the lists
 price changes and competitive advantages of
firms were not reflected
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Customs valuation Methods..
2.Tokyo Round Valuation Code
 Concluded In 1979 under article VII of
GATT
 Based on the price actually paid or payable
for the imported goods
 Based on the “transaction value”
 Intended to provide a fair, uniform and
neutral system for the valuation of goods

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Customs valuation Methods..
3.The new Agreement
 This agreement is essentially the same as the
Tokyo Round Valuation Code and applies
only to the valuation of imported goods for
the purpose of levying ad valorem duties on
such goods.
 This is called Agreement on Customs
Valuation (ACV).
 The implementation of the ACV started on
1st January, 2001 in Tanzania.
 Is fair uniform and neutral and conforms to
commercial realities

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Agreement on Customs Valuation
(ACV).
 The ACV provides for a system of valuing
goods for customs purposes which is fair
uniform and neutral and conforms to
commercial realities.
 It prohibits the use of arbitrary or
fictitious customs values.

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 Six(6) methods under ACV
 Method 1: The Transaction Value of imported
goods
 Method 2: The Transaction Value of Identical
goods
 Method 3 : The Transaction Value of similar goods
 Method 4: The Deductive Value
 Method 5 :The Computed Value
 Method 6:The Fall-back method
These methods are hierarchical and must be applied
in strict sequence
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METHOD 1: Transaction value of
the imported goods
Transaction value is the sum of
 Price actually paid or payable
 The packing costs incurred by the buyer
 Selling commission incurred by the buyer
 Cost of assists
 Any royalty or license fee payable by buyer
 Cost of transport and insurance and
related charges

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Demurrage Charges
 Demurrage is incurred-because of delay in
loading or unloading the ship-and becomes
payable by the imported in addition to the price
paid for the goods
 Included in the value
 NOT be confused with storage charges(exclusio)
Primage
 Percentage added to freight charges by ship
owners or shipping agents for care and trouble
 Included in the value for customs
purposes
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Inspection Fees
 Fee paid at the foreign suppliers in order
to verify the specified quality
 It is included
Cash discounts
• Cash discount should be allowed as
exclusion in the transaction value
Quantity discounts
 Allowed as a deduction from the value for
customs
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NOTE:
Price Actually Paid or payable
This is the total payment that the buyer
makes to the seller which may be direct or
indirect.
Amounts excluded from transaction value
 Freight after importation
 Cost of construction , erection, assembly
occurring after importation
 Duties and taxes of the importing country

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Laminations/Conditions on the
use of transaction value
1. Evidence of a sale for export e.g. commercial invoices,
sale contract, Bank remittance.
2. Must be no restrictions on disposal

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Laminations/Conditions on the
use of transaction value
1. Evidence of a sale for export e.g. commercial invoices, sale
contract, Bank remittance.
2. Must be no restrictions on disposal or use by the buyer
3. Restrictions which limit the geographical area in which the goods
may be resold
4. The sales price is not subject to some condition or consideration
for which a value cannot be determined with respect to the
imported goods
5. No part of the proceeds of any resale, disposal, or us of the
imported goods by the buyer will accrued directly to the seller
unless an appropriate adjustment can be made
6. The buyer and seller should not be related

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 METHOD 2:Transaction value of
identical goods
 Used when the transaction value method fails or is not
applicable and when transaction value of identical goods
imported at or about the same time is available
 Under ACV, Identical goods are:-
a. The same in all respects including physical
characteristics, quality and reputation
b. Produced in the same country as the goods being
valued;
c. Produced by the producer of the goods being valued.
 Minor difference in appearance accepted
 Goods produced from different persons but the same
country are accepted

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METHOD 3: Transaction value of
similar goods
 Applied when method 1&2 fail or do not applied
 Transaction value of similar goods imported at or
about the same time.
Similar goods under ACV model are:-
 Closely resemble the goods being valued in terms
of characteristics and component materials
 Can perform the same functions and are
commercially interchangeable
 Produced in the same country of valued goods
 Produced by the producer

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Transaction value of similar goods cont.
Example of similar goods
Tyres:
 A Goodyear tyre size 14/165
 A Dunlop tyre size 14/165
Note:
The value should adjusted upwards or downwards in
case of differences to take account on:
a) Commercial level differences
b) Quantity differences; and
c) Significant differences in the transport costs,
insurance charges etc.
If there is two or more than the lowest has tobe used
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METHOD 4: Deductive method
 Value is determined on the basis of sales in the
country of importation of the goods being
valued or of identical or similar imported goods,
less certain specified expenses resulting from the
importation and sale of the goods.
Conditions for the sale
 Goods resold at the same conditions
 Sales should made not more that 90 days
 If no similar or identical imported goods, the goods went
further processing may be used
 Purchaser and seller must not be related

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METHOD 4: Deductive method cont..
Deductive value is determined by deducting from such
unit price the following:-
a) Commissions paid or profits and general expenses in
importing country
b) Transport, insurance and other associated costs within
the country of importation
c) Customs duties and other taxes payable in the
country of importation on import and sale
d) Value added by processing when applicable

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METHOD 5: Computed value method
 Assessment is based on computed value which
shall be the sum of:-
 Cost of materials, fabrication and processing
employed in producing the imported goods.
 Profit and general expenses for sales
 Cost of transport, insurance and loading,
unloading and handling charges
Problems:-
 The buyer and seller are related, and
 If the producer is not prepared to provide
data on the cost of production.
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METHOD 6: Fall-back method
 Customs value in cases where it cannot be
determined under the previous five
methods.
Restrictions for use of fall back method

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The Fall-back method may be used where

 The transaction is a hire transaction

 No identical or similar goods are imported.
 The goods are not resold in the country of
importation.
 The manufacturer is unknown or refuses
divulge cost data to foreign administration.
 The information supplied by the manufacturer
cannot be checked.
 In such cases, the customs value determined
under the Fall-back method
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