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Customs Valuation Method 5 COMPUTED METHOD 52 • Again with this method a sale of goods for export to the Republic would have not taken place for some reason. This method starts at the exact opposite end of the scale from the deductive method. • The transaction value by the computed method is ascertained by means of information supplied by the producer commencing with cost of materials at the manufacturer’s premises and progressively building on the costs and charges (EXW) until a price at the “place of export” is ascertained (FOB). • This is achieved by the supplier disclosing the cost or value of materials and processing, packing, container and labour costs, value of goods and services supplied by the importer. To this is added costs incidental to delivery of the goods at the port or place of export/valuation point and an amount for profit and general expenses equal to that generally applicable in sales of the same class of goods.
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Customs Valuation Method 6 FALL BACK METHOD 54 • This is known as the “last resort” method which empowers the Commissioner to determine a value on the basis of either a reference to a previous determination for identical or similar goods, or by reasonable and more flexible application of the principles consistent in Methods 1 to 5. • The Customs Act however, safeguards importers and specifically precludes the Commissioner from basing a determination on: “the selling price in the Republic of goods produced in the Republic”; ◦ a system which provides for the acceptance for customs purposes of the higher of two alternative values; ◦ the selling price of goods on the domestic market of the country of origin or of exportation of the imported goods; ◦ the cost of production, other than computed values which have been determined for identical or similar goods in accordance with subsection (8); ◦ the price of the goods for export to a country other than the Republic; ◦ a system of minimum customs values; or ◦ Arbitrary or fictitious values.
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List of dutiable charges (to be added to FOB Value) 56 • Amounts to be added to amount paid or payable (if not included in the amount paid/payable) • Commission (excluding buying commission) • Brokerage • Cost of packing both labor and material • Cost of containers being part of the goods • Items supplied by the buyer free or at a reduced cost for the use in manufacture of the goods (plans/sketches/tools/dies/moulds/engineering work/materials/components. • Royalties or license fees in respect of the imported goods (including patents/ trademarks/copyright). This excludes charges for the right to re-produce or sell the goods in the Republic. • Proceeds of any subsequent re-sale/disposal or use that accrues to the seller. • Transportation/loading/unloading/handling/ insurance, and any associated cost incidental to getting the goods to the port or place of export in the country of export AND placing those goods onto the main carriage at that port or place
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List of non-dutiable charges (to be deducted from FOB Value) 58 • Amounts to be deducted to amount paid or payable (if not already excluded from the amount paid/payable) • Buying Commission • Duties or taxes payable in the republic • Transportation/loading/unloading/handling/ and any associated cost incidental to delivering the goods at the place of entry into the republic. • Any charges for the right or license to reproduce the goods in the republic • Cost of transport from the port or place of export in the country of export. Or if goods purchased after leaving place of export in the country of export, from the place the goods were purchased • Cost of insurance from the port or place of export in the country of export. Or if goods purchased after leaving place of export in the country of export, from the place where the goods were purchased. • Cost in construction/erection/assembly/ maintenance/technical assistance/transportation after the goods had been imported. • Interest under generally accepted accounting principles, if: finance arrangement in writing, proof of interest paid. Excluding interest from delayed payments, interest made by buyer to seller arranged as part of the total payment made to the seller.
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Discounts 60 Retrospective and Progressive Discount: These discounts are granted to buyers who achieve a certain turnover or quantity purchased over a specified period of time. They are not accepted by Customs for ascertaining transaction value. Cash Discount / Settlement Discount / Advance Payment Discount/Trade Discount: These discounts are allowed provided the importer can prove that the goods have been paid for before time of entry and have been ‘earned’ as such. Unrelated Discount: Any discount or debit / credit which does not relate directly to the specific shipment on which it is granted is not accepted by Customs in ascertaining the transaction value. Sample Discount: Such samples are usually supplied at substantial discounts, often as much as 50%. A sample discount will be accepted in determining the Customs value provided that the quantities supplied are no more than is reasonable for the purpose and that the requirements Quantity Discount: Quantity discounts are deductions from the list price of goods allowed by the seller according to the quantities purchased in a single transaction or over a given period (progressive quantity discount). To qualify, the discount must be granted at the time of purchase which has the effect of fixing the price of the goods to be imported.
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Lesson 3 Customs Values Vs. the Customs Act, 91 of 1964 62 Discussion Points: 1. Introduction to Customs Valuation 2. Customs Definitions 3. Rules referred to i.t.o. Customs Valuation 4. RSA Rules for Customs Value Base 5. ICC Incoterms vs. Customs Value 6. RSA Customs Interpretation of FOB 7. Customs Rates of Duty Terminology (Including VPB Formula) 8. Customs VAT (Including ATV Formula) 9. Customs Duty Rebate Schedules
INTRODUCTION TO RSA CUSTOMS VALUATION 63 Customs Valuation is a complex subject and deals with a number of issues such as: • The valuation point, at which point is the value determined for customs purposes. • Country of Export (COE) vs. Country of Origin (COO) and Rules of Origin (ROO) • The rates of exchange (ROE) to be used when changing the value into South African Rand (goods paid under FOREX contracts have different rules for ROE used) • Calculating the Customs Value for Duty Purposes (i.e. which amounts / elements should be added or subtracted from values, i.e. Invoice Value vs. FOB Value to arrive at the VDP). IMPORTANT: To round off all Customs Values (VDP, VPB & ATV), RSA specific rule, if the value exceed 51c, then round up, if less than 51c, then round down (i.e. R1.50 = VDP R1, whereas R1.51 = VDP R2; no decimals). And also…
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Introduction to Customs Valuation (continued) 65 • Multi-line invoices where factorisation is used need to be adjust each item’s line value for VDP • Customs Value for Sch.1 Part 1 duties are calculated differently to value for Advalorem Value in line with adv. duties in Sch.1 Part 2B, including ATV for VAT payment. • Rounding off of Customs Values are different to that of rounding off Duties and VAT payable. • Responsibility for determination of values. • 6 methods of value determination for imported goods • Valuation of specific imported goods (own use/refurbished goods/carrier medium imported)
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Customs Definitions: COST, PRICE AND VALUE FOR CUSTOMS PURPOSES 67 i. Cost of Goods means the “Total Cost of Goods” Definition: This is the difference between the Purchase Price and the Actual Cost of the Goods delivered to your stores. ii. Price means the “Actual Price Paid” Definition: This is the Purchase Price as indicated on the Supplier’s Commercial Invoice. iii. Value means that “All Goods have a Value!” Definition: All goods, no matter whether supplied free of charge, or samples, or even scrap, has a value!
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RULES REFERRED TO I.T.O. CUSTOMS VALUATION Customs Act 91 of 1964 (current) Chapter IX (or 9) i. Section Note 65: Value for duty purposes on any goods imported into the Republic ii. Section Note 66: Transaction value iii. Section Note 67: Adjustments to price actually paid or payable iv. Section Note 72: Value of goods exported Customs Duty Act 30 of 2014 (new) Chapter 7 i. Part 2 Section Notes 115 - 126: Value self-determination, determination and redetermination ii. Part 3, Section Notes 127 – 136: Valuation of imported goods iii. Part 5, Section Notes 139 & 140: Valuation of goods exported or to be exported 69
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RSA RULES FOR CUSTOMS VALUE BASE 71 Imported Goods: Section Note 65 tells us that the Customs Value shall be based on the Transaction Value of the goods, (a) reading though with Section Note 66 explaining the term “Transaction Value”, plus rules thereto and five (5) other valuation methodologies, and (b) reading with Section Note 67 whereby the Transaction Value can be adjusted (i.e. applying dutiable or non-dutiable charges). In a nutshell, it simply means we need to calculate the Free on Board (FOB) Value from POL and to round that off to become the VDP. Exported Goods: Section Note 72(a) simply tells us that the Customs Value shall be the Free on Board (FOB) Value at the place of dispatch from the RSA. Note 72(b) tells us if there is no FOB price, then the export value shall apply as if it was sold at a BOB price.
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ICC INCOTERMS VS. RSA CUSTOMS VALUE 73 All commercial invoices should indicate the ICC Incoterm. It informs Customs what the transaction value base is, and whether the transaction value needs to be adjusted to arrive at the FOB value. • Incoterm Groups E and F: All physical costs, including any commissions (but excluding buying commissions), contributing to the cost for placement of the goods onto the means of international transport (or international carriage, aka freight), must be added to the transaction value to calculate the FOB Value. • Incoterm Groups C and D: All costs after the FOB point, must be deducted from the transaction value to arrive back at the FOB Value (i.e. goods sold as CIF, where insurance and the international freight may be deducted to ascertain the FOB Value). Let’s refer to the illustration on the next page…)
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75 ICC INCOTERMS VS. CUSTOMS VALUE (ILLUSTRATED) FOB Point: Determines FOB Value All costs after the FOB Point to be deducted in order to Determine the FOB Value All costs prior to FOB Point to be added to get to FOB Value
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RSA CUSTOMS INTERPRETATION OF FOB 77 • The Customs interpretation of the term “FOB”, literally means the goods are place on board the means of international carriage (Vessel, Aircraft, Truck & Train). • Because it is a literal interpretation, Customs use the term “FOB” only to best describe at what point the Customs Value for Duty Purposes (VDP) should be calculated. • This means that the ICC Incoterms are required for guidance purposes only in order for Customs to understand what the transaction value basis was and whether that value (“price of goods”) should be adjusted in order to calculate the Customs Value for VDP. • Adjustment to “price” therefore means the transaction value should include dutiable charges (ICC Incoterms EXW – FOB, although the FOB will be closely scrutinised, especially for an airfreight importation), or whether the transaction value should exclude non-dutiable charges (ICC Incoterms CFR – DDP).
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Customs Rates of Duty Terminology Excise Duties 79 • The duty rate termed as “excise” refers to a duty rate in Cents or Rands payable on the Customs Value (VDP = Value for Duty Purposes) (i.e. 200c per kg or R2 per kg) • These duty rates are used in both schedules, Sch. 1 Part 1 – The Tariff, and Sch. 2 – Protection Duties (Anti-dumping, etc..) and they are mostly based on the statistical unit applicable to that tariff item (hence why it so important to calculate the correct unit stats, i.e. KG, LI, NO, etc..) • In some cases one can encounter a combination of excise rates and ad-valorem rates to calculate which duty is payable on that specific item. • NOTE: Sch. 1 Part 2A is specifically called Excise duties since the latter applies to “sin taxes” (i.e. Alcohol, Tobacco, etc..) and the rate of duty is always a ZA currency-rate base (Cents or Rands) (Excise duties are payable on the VDP).
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Customs Rates of Duty Terminology Ad-valorem Duties 81 • The duty rate termed as “ad-valorem” refers to a duty percentage (%) rate payable on the Customs Value (VDP = Value for Duty Purposes or VPB). • Thus ad-valorem duties are used in both schedules, Sch. 1 Part 1 – The Tariff, and Sch. 2 – Protection Duties (Anti-dumping, etc..). • NOTE, Sch. 1 Part 2 B is specifically called Ad-valorem duties since the latter applies to “luxury goods” (i.e. Motor Vehicles, Television Sets, etc..) and the rate of duty is always a percentage base. • However, before one can calculate the ad-valorem duty payable i.t.o. Sch. 1 Part 2B, one first have to calculate the Customs VPB (Value for Part B, or Ad-valorem Value). • The formula for the VPB is: VPB = (VDP + 15%) + all other duties (the Ad-valorem duty payable is then based on the VPB and payable on top of other duties).
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Customs Rates of Duty Terminology Customs VAT 83 • Currently Customs VAT is payable on imported goods with some exceptions of Vat Exempted goods. • However, one must calculate the Customs Added Tax Value (ATV) before ascertaining the VAT payable. • The ATV Formula: ATV = (VDP + 10%) + all duties (the VAT is payable is then based on the ATV and on top of all duties payable.
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Customs Rebate Schedules Sch. 3 – Industrial Rebates 85 • Schedule 3 – Industrial Rebates (aka IR), refers to Customs Duty Rebates for specific industries. • Manufacturers therefore within such a specific industry may apply for a rebate of duty on imported goods. • However, the extent of rebate may vary from “full duty” to that of “full duty less” than a specific rate (either rated as an excise or ad-valorem duty). That means only part of the original duty is rebated. • Schedule 3 is divided into two Parts, where Part 1 refers to “Goods used in the manufacture of other goods”, and Part 2 refers to “Goods used in the manufacture of other goods for export”. • The Rebate Item numbers in the Schedule commence with 302.00 and extend to 321.00 to correspond with the 21 Sections of Schedule 1.
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Customs Rebate Schedules Sch. 4 – General Rebates 87 • In Schedule 4, General Rebates (aka GR), are available to individuals, groups of persons, different organisations and entities. It may also depend on various factors in their application, i.e. importation for re-manufacturing for re-exportation purposes. • Schedule 4 is split into various parts depending on the abovementioned reasons and requirements: ◦ Part 1 : Specific rebates of customs duties ◦ Part 2 : Temporary rebates of customs duties ◦ Part 3 : Goods temporarily admitted under rebate of customs duties ◦ Part 4 : Rebates of fuel levy • Goods admitted under General Rebate may be subject to certain conditions or the production of certain certificates and ITAC permits.
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Lesson 4 Practical Applications 89 1. Exercise 1 – Rules of Origin Quiz 2. Exercise 2 - Calculating Customs Values • 2.1 – Calculate the VDP for an EXW Shipment • 2.2 – Calculate the VDP for a DAP Shipment • 2.3 – Establish the VDP, Calculate the VPB, ATV and related duties / taxes
Exercise 1 Rules of Origin (ROO) Quiz 90 • 1 st Scenario: Goods originate from USA and was exported from the USA. (a) What is the country of export, and (b) what is the country of origin? • 2 nd Scenario: Goods were exported from port of New Ark – USA, but was manufactured in Montreal – Canada. (a) What is the country of export, and (b) what is the country of origin? • 3 rd Scenario: Buyer in SA purchase T-shirts from a Trading House in Malaysia. However, the Trader does not tell the Buyer that the factory where he purchased the goods from is in China. Customs stop the goods and impose an anti-dumping duty. (a) What is the country of Export, and (b) what is the country of origin? (c) Why was there and anti-dumping duty?
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Exercise 1 Rules of Origin (ROO) Quiz (Continued) 92 • 4 th Scenario: Dell Computers in India purchase their PCs’ motherboards from Dell USA. Dell India purchase all of the other parts to assemble their PCs from electronic PC component manufacturers in India. The motherboard contributes to less than 10% of the fully assembled PC. Dell SA imports the fully assembled from Dell India. Customs stop the goods to verify the country of origin, AND to investigate the Buyer and Seller’s relationship because their was no VDN on the CCD. (a)What is the country of export? (b)What is the country of origin? (c)Why would Customs investigate the Buyer and Seller Relationship?
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Exercise 2: PLEASE NOTE 94 • There are 3 practical exercises for Exercise 2. • All 3 are for Customs Value Calculations (VDP), with 2.3 demonstrating the VPB calculation, ad-valorem duty calculation, ATV calculation and the VAT calculation. • These are all inter-active with your host who will guide you accordingly. • In order to complete each exercise, you need to print the templates (Customs Worksheets) provided for each. Thank you!
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Template For Exercise 2.1 96 VDP Calculation Shipping / Incoterm Currency Foreign Values ROE ZAR Values Rounded Values Invoice / Transaction Value = (INV Value) = (VDP) + CIF & C Calculation (VDP + CIF Values + M/Ins = CIF & C) Currency Foreign Values ROE ZAR Values Rounded Values Marine Insurance = (CIF & C Value) (Invoice Value) ZAR : (VDP) ZAR : Factor = (ALWAYS WORK ON A MINIMUM OF 8 DECIMALS) Currency Foreign Values ROE ZAR Values Insert Factor to Calculate VDP per Item New VDP Value per Item (Rounded off) Line Item 1 : Line Item 2 : Line Item 3 : Note : Tolerance allowed by Customs is equal to R10 Recon (equal to Total VDP) = CUSTOMS WORKSHEET Exercise No. 3.1 Section 1 - General Section 2 - Multiline Information Description of Charges : (Transfer the Rounded Values as per above) Factoring Total FOB for VDP = ZAR Stats Value for B/E = Freight Charges: Calculating the VDP per Item DO NOT COMPLETE THIS SECTION IF THE INVOICE IS EQUAL TO A ONE-LINE ITEM ONLY!
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Template For Exercise 2.2 98 VDP Calculation Shipping / Incoterm Currency Foreign Values ROE ZAR Values Rounded Values Invoice / Transaction Value = (INV Value) = (VDP) CIF & C Calculation (VDP + CIF Values + M/Ins = CIF & C) Currency Foreign Values ROE ZAR Values Rounded Values DAP VALUE THC STEVEDORES = (CIF & C Value) (Invoice Value) ZAR : (VDP) ZAR : Factor = (ALWAYS WORK ON A MINIMUM OF 8 DECIMALS) Currency Foreign Values ROE ZAR Values Insert Factor to Calculate VDP per Item New VDP Value per Item (Rounded off) Line Item 1 : Line Item 2 : Line Item 3 : Note : Tolerance allowed by Customs is equal to R10 Recon (equal to Total VDP) = DO NOT COMPLETE THIS SECTION IF THE INVOICE IS EQUAL TO A ONE-LINE ITEM ONLY! Section 2 - Multiline Information Factoring (Transfer the Rounded Values as per above) Calculating the VDP per Item CUSTOMS WORKSHEET Exercise No. 3.2 Section 1 - General Description of Charges : Total FOB for VDP = ZAR Stats Value for B/E = RSA Charges:
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Template For Exercise 2.3 100 Calculating Payment Due Customs + SCH.1 P.1 Duty : + SCH. 1 P. 2B Duty : + VAT : Total Due Customs = ATV (Rounded off) = Current VAT Rate : VAT Payable = Calculating the ATV VDP : + Percentage Increase Rate : + SCH.1 P.1 Duty : + SCH. 1 P. 2B Duty : Total = Customs FOB Value : 3.3. Calculating the VPB VPB (Rounded off) = Rate of Adv-Duty SCH.1 P.2B : Calculation VDP = Ad-Valorem Duty Payable = Total = + SCH.1 P.1 Duty : + Percentage Increase Rate : VDP :