❖ CLEARING ❖ FORWARDING ❖ CUSTOMS ESSENTIALS Customs Essentials Module 2.2 – The Customs Quartet CUSTOMS VALUES & DUTIES Occupational Certificate | 96368 – Clearing & Forwarding Agent | NQF 5 STDENT STUDY AID (4 of 4)
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Module 2.2. Lesson Plan 3 Day 1 • Lesson 1 – Introduction to the Customs Quartet • Lesson 2 – Essential Everyday Customs Knowledge 1. The Customs HS Code for Tariff Classification 2. The Customs Rules of Origin 3. The Customs Value and Value Basis in the RSA Day 2 • The Customs Rules of Origin Day 3 • The Customs HS Tariff Classification Day 4 • Lesson 1 – Customs Valuation • Lesson 2 – Duty Calculations
4 Module 2.2 Day 4 The Customs Quartet: CUSTOMS VALUES & DUTIES
Lesson Plan – Day 4 • Lesson 1 – WTO & GATT Defining Customs Values for International Application • Lesson 2 - Customs Values and Defining Customs Duty Terminology • Lesson 3 - Customs Values Vs. the Customs Act, 91 of 1964 • Lesson 4 - Practical Applications (SIMS) 1. Lexisnexis Publication Section 65 – 74A: https://sars.mylexisnexis.co.za/ 2. Customs Values (Valuation) Explained & Relevant Policies: https://www.sars.gov.za/customs-and-excise/valuation/
MAKE NOTES 6 Note the following important value abbreviations and specific formulas: Customs Values Description FOB Value • FOB = Value of goods + all costs up to POL + placing the goods onto the international means of transport (i.e. ship, aircraft, truck, railway wagon) • Value bases for imports & exports VDP • Rounded FOB Value to nearest Rand, where VDP is import specific, meaning Value for Duty Purposes (Schedule 1 Part 1) VPB • Value Part B, refers to Customs Ad-valorem Value (aka ADV or AdValorem Duty Value) to calculate ad-valorem duty payable under Schedule 1 Part 2B • Formula: VPB = (VDP +15%) + All Duties Payable ATV • Added Tax Value, refers to Customs Value to calculate the VAT payable to Customs • Formula: ATV = (VDP + 10%) + All Duties Payable
MAKE NOTES (CONTINUED) 7 Note the following important rule to rounding off of Customs Values (VDP, VPB & ATV): • Rounding to nearest Rand denominator = 51 cents (51-Cent-Rule) • Where the Customs Value (FOB) is MORE than 51 cents, then round up to nearest Rand. Example: Value is R1.51 = R2 (no decimals) • Where the Customs Value (FOB) is LESS than 51 cents, then round down to nearest Rand. Example: Value is R1.50 = R1 (no decimals) Any payments due, duties & Vat to Customs, are rounded off to 2 decimals!
SARS WEBSITE 8 1. Lexisnexis Publication Section 65 – 74A: https://sars.mylexisnexis.co.za/ 2. Customs Values (Valuation) Explained & Relevant Policies: https://www.sars.gov.za/customs-and-excise/valuation/
Lesson 1 WTO & GATT Defining Customs Values for International Application 9 Discussion Points: VALUATION, 1. What is it? 2. Do we need it? 3. Where did it start? 4. Why Valuation Methodologies? 5. Is it used globally? 6. WTO Agreement 7. My Toolkit
VALUATION, WHAT IS IT? 10 Valuation refers to Customs Values, where specific rules are applied, specific calculation methods (methodology) are applied to calculate various types of Customs Values. Customs Values therefore cover the following: • Customs BASE Value, aka the Customs Value to calculate other values • Converted Customs Values refers to Value for Duty Purposes (VDP) • Stats Values, i.e. CIF & C, used by ITAC & RSA Reserve Bank, where: - ITAC establish trade statistics (imports & exports), and - RSA Reserve Bank establish FOREX (foreign exchange) resources
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VALUATION, DO WE NEED IT? 12 Yes we do! International trade is based on foreign exchange as goods pass from one “hand” to the other, therefore to calculate Customs values, we observe rules: • We need to understand how to calculate the Customs Values by means of currency conversions (exchange rates), • What are the Customs Rules on conversion rates, • How to apply the Customs Rules to convert foreign values, • What the Customs Value Base is (common denominator) to calculate all types of Customs values, • What the Rules are to round up or round down Customs values, and • How to calculate all types if Customs values for various duties & taxes
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VALUATION, WHERE DID IT START? 14 GATT → General Agreement on Tariff and Trade, Article VII • Tokyo Round Valuation Code – 1979: Agreement to implement Article VII of the GATT refers to Customs Valuation is based on the price actually paid / payable for imported goods, meaning the transaction value. • Uruguay Round – 1994: Replaced the 1979 Tokyo Round Code by means of the WTO Agreement on GATT Article VII. It applies to valuation on imported goods where an ad-valorem (percentage base) duty applies to such goods. It does not cover other types of Customs Value basses (i.e. Export Values or such related duties).
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VALUATION, WHY VALUATION METHODOLOGIES? 16 The GATT Article VII, contemplates 6 Valuation methods in order to establish a uniform methodology to calculate the Customs Value for Duty Purposes (VDP). The main method (no.1) is based on the transaction value, the remaining 5 addresses other types of methods where the “price of goods” has been distorted, or could not be established immediately. To quote: “The Agreement stipulates that customs valuation shall, except in specified circumstances, be based on the actual price of the goods to be valued, which is generally shown on the invoice. This price, plus adjustments for certain elements listed in Article 8, equals the transaction value, which constitutes the first and most important method of valuation referred to in the Agreement.”
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VALUATION, IS IT USED GLOBALLY? 18 • Yes, it can be regarded as an “international langue” because it is used as a global instrument to guide Customs with a set of international guidelines on calculation methodologies to establish the Customs Value applicable to imported goods at the time of Customs-clearing, bearing in mind that Method 1, the Transaction Value, meaning the commercial value, is considered the primary method and may be adjusted to arrive at the actual Value for Duty Purposes (VDP). • The Agreement further contemplates 5 other methods of customs valuation, to be applied in a prescribed hierarchical order. This relates to values where the actual price of goods could not have been established, or the invoice value is not the commercial value, nor is it the actual transactional value.
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VALUATION, WTO AGREEMENT 20 • The sequence of methods 4 and 5 can be switched at the request of the importer, but not at the discretion of the customs officer. • The Agreement contains provisions for special and differential treatment of developing countries and for technical assistance. • The WTO Agreement is an integral part of the single WTO undertaking, meaning all WTO Members are Members of the Customs Valuation Agreement.
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VALUATION, MY TOOLKIT – PART 1 22 Primary Documentation: 1. Supplier’s Commercial Invoice (referring to transaction value) 2. Certificate of Value and Certificate of Origin (CoO) 3. Freight Forwarder’s Invoice / Statement of Costs 4. Main International Carrier’s master waybill showing shipped on board date (ocean freight) / Receipt Date (air freight), or NVOCC’s S.O.B. Details (groupage cargo, ocean freight), or ANF (ocean freight), or Road / Road Waybill, or Rail Transport Note / Rail Wagon Note, or Air Consolidator’s Airfreight Confirmation Note
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VALUATION, MY TOOLKIT – PART 2 24 Secondary Documentation: 1. House Waybills in case of Ocean Groupage or Air Consolidations 2. Importer’s Customs Clearing Instruction 3. Sales Contract / Purchase Order / Indent Note 4. Import / Export Permits, including other statutory certificates. i.e.: - Dept. of Health & Port Health (i.e. medicaments), - Veterinary Certificate or Meat Certificate (State Vet), - Phyto Certificate (Plant Inspector)
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Lesson 2 Customs Values and Defining Customs Duty Terminology 26 Discussion Points: 1. GROUPS & TYPES OF CHARGES 2. ICC Incoterms, Values based on 2020 terms (EXW to DDP) 3. Customs Valuation Methods • Transaction Value method • Transaction Value of Identical Goods • Transaction Value of Similar Goods • Deductive method • Computed method • Fall Back method
GROUPS & TYPES OF CHARGES 27 Costs or charges adding to the total cost of the goods can broadly be grouped as follows: • MANUFACTURING: Costs of manufacturing the goods, packaging them or otherwise preparing them for exportation; • TRANSPORT / CARTAGE: Costs of transporting them to the place where they will be placed on the means of transport which will convey them to the country of final destination, including the cost of documentation, storage, handling, repacking, etc.. Incurred by whoever it may be whilst the goods await to be placed on board that means of transport (i.e. aircraft, ship, train, etc..); • FREIGHT / CARRIAGE: Cost of actually freighting the goods to the country of destination (international carriage); and • TAXES & BANKS: Any other costs which are immediately or remotely connected with the particular goods being imported including bank charges or other costs of financing, fees demanded by middlemen of miscellaneous descriptions, taxes and other dues suffered by the importer or some other person as a result of the purchase of the goods.
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ICC INCOTERMS – 2020 29 3-Digit Term Description Freight Collect / Prepaid Mode of Transport EXW Ex-works, Named Place Collect All Modes FCA Free Carrier, Named Place Frist Carrier Collect All Modes FAS Free Alongside Ship, Named Port (of loading) Collect Ocean / Sea FOB Free on Board, Named Port (of loading) Collect Ocean / Sea CFR Cost and Freight, Named Port (of discharge) Pre-paid Ocean / Sea CIF Cost Insurance & Freight, Named Port (of discharge) Pre-paid Ocean / Sea CPT Carriage Paid To, Named Place of Destination Pre-paid All Modes CIP Carriage & Insurance Paid To, Named Place of Destination Pre-paid All Modes DPU Delivered at Place, Unloaded (from Carrier) Pre-paid All Modes DPA Delivered at Place, Named Place (at destination) Pre-paid All Modes DDP Delivered, Duty Paid, Named Place (at destination) Pre-paid All Modes
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INCOTERMS END-TO-END INT. CARRIAGE/ FREIGHT Seller / Exporter (A) Gate Buyer / Importer (B) Gate ORIGIN DESTINATION Incoterms starts with EXW (Ex-Works) and ends at DDP (Delivered Duty Paid) POL O - POE POD D - POE EXW DDP
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COST INCREASE ON A SLIDING SCALE INT. CARRIAGE/ FREIGHT Seller / Exporter (A) Gate Buyer / Importer (B) Gate ORIGIN DESTINATION Incoterms starts with EXW (Ex-Works) and ends at DDP (Delivered Duty Paid) POL O - POE POD D - POE COST INCREASE ON A PROGRESSIVE SLIDING SCALE FROM EXW TO DDP EXW DDP
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VALUE BASED ON ICC INCOTERMS TRANSPORT LEG 1 – ORIGIN (EXW TO FOB) 35 3- Digit Term Value Description Value Base Costs Added EXW Ex-works / EXW Value = Ex-factory Value + Packaging FCA Free Carrier / FCA Value = EXW Value + Handling + Transport to Default Point FAS Free Alongside Ship / FAS Value = EXW Value + Transport to POL + THC FOB Free on Board / FOB Value = FAS Value + Cranage (Wharfage) + Stevedoring
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VALUE BASED ON ICC INCOTERMS TRANSPORT LEG 2 – INT. CARRIAGE (C-TERMS) 37 3- Digit Term Value Description Value Base Costs Added CFR Cost and Freight / CFR Value = FOB Value + Freight Cost + Freight Surcharges CIF Cost Insurance & Freight / CIF Value = CFR Value + Insurance Premium CPT Carriage Paid To / CPT Value = CIF Value + On-carriage from POD to Final Destination CIP Carriage & Insurance Paid To / CIP Value = CPT Value + Insurance Premium
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VALUE BASED ON ICC INCOTERMS TRANSPORT LEG 3 – DESTINATION (D-TERMS) 39 3- Digit Term Value Description Value Base Costs Added DPU Delivered at Place / DPU Value = CIP Value + Offloading + THC + Delivery to Place DPA Delivered at Place / DPA Value = DPU Value + Transport to Final Delivery Place / Importer’s Gate DDP Delivered, Duty Paid / DDP Value = DPA Value + Transport to Final Delivery Place / Importer’s Gate + Customs Duties & Taxes
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FORMAT FOR EST. LANDED COST END-TO-END INCOTERMS BREAKDOWN 41 # Cost Item / Description Units Unit Value Foreign Value Currency ROE ZAR Value A EXW to FCA / FOB EXW Value 1 000 250 250 000 EUR 16.50 4 125 000 1 + FCA / FOB Costs List List 1 575 EUR 16.50 25 988 FOB VALUE = 4 150 988 B FCA / FOB to CFR / CPT 2 + Freight & S/Charges 1 4 500 4 500 USD 14.25 64 125 CFR / CPT Value = 4 215 113 C CFR / CPT to CIF / CIP 3 + Insurance Premium 1 375 375 USD 14.25 5 344 CIF / CIP Value = 4 220 457 D CIF / CIP to DDP 4 RSA Landside Charge List List 9 500 ZAR 1.00 9 500 DDP Value = 4 229 957
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Customs Values 43 6 Methods to Calculate Customs Values
Customs Valuation Method 1 TRANSACTION VALUE METHOD 44 Determining a “Transaction” Value: • A transaction value is the amount actually paid or payable for imported goods, adjusted by adding amounts or deducting amounts. These are also known in Customs Terms as Dutiable Charges and Non-Dutiable Charges. • In other words, the basis for all values should be that of the Ex-Works Value (the manufactured value). However, the EXW Value can be increased as suggested by the ICC Incoterms up to the point where both parties mutually agree to the Sales Value or Invoice Value.
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Customs Valuation Method 2 TRANSACTION VALUE OF IDENTICAL GOODS 46 • Applied in the situation when there is no sale and no money passes hands or payment is only maid at a later stage. This can happen on a regular basis, examples are when goods are supplied free of charge, such as samples, advertising matter, goods replaced or goods that have incorrectly been supplied or replaced. • If the transaction value cannot be ascertained by fully exploring Method 1, it shall be the price actually paid or payable for “identical goods in a sale for export to the Republic at the same commercial level, and in substantially the same quantity and exported at or about the same time, as the goods to be valued” adjusted according to the costs and charges as prescribed by rule. • Where no previous sale of such goods can be found, then a different method of sale and sales value can be established, and if more than one such sale was found, then Customs will use the lower value between the two sales.
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Customs Valuation Method 3 TRANSACTION VALUE OF SIMILAR GOODS 48 • This method is used for very much the same reasons as Method 2 i.e. where no sale has taken place. • The definition of similar goods “means goods produced in the same country and by the same or a different producer as the imported goods, and which although not alike in all respects to the imported goods, have, with due regard to their quality and reputation and the existence of a trade mark, like characteristics and like component materials which enable them to be employed for the same purposes and to be commercially interchangeable.” • The application and comments on “valuation” as referred to earlier, are under this method otherwise the same as for Method 2.
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Customs Valuation Method 4 DEDUCTIVE METHOD 50 • This method is normally resorted to in respect of goods supplied ‘on consignment’ by a foreign supplier to his agent in South Africa. Method 1 cannot be applied since the goods are not imported as the result of a sale. • The only known factor is a predetermined price that the supplier wants the goods to be sold for in South Africa. This unit price is therefore used as a starting point from which various non-dutiable charges are deducted to finally ascertain a transaction value. • The unit price of imported, identical or similar imported goods in the same condition sold by importers in the Republic in the greatest aggregate quantity at or about the time of importation of the goods to be valued to persons not related to them is used as a basis. • The deductive method is then applied subtracting various costs and charges until the price at the “place of export / valuation point” or FOB has been arrived at.