By Ayoub
Mtafya, Partner at NexLaw Advocates
In
Summary
Valuations
of imported goods is a wide topic, but let us discuss the methods of valuation
of customs goods to see if in all instances TRA is justified in increasing the
value of goods.
One
of the common and notorious complaints from importers of goods in Tanzania is
the ‘increasing the value of goods’ by Tanzania Revenue Authority (TRA).
It
is common for TRA to increase the value of imported goods so as to maximize tax
collection from the imported goods because the higher the value of the imported
goods the higher the tax revenue.
Obtaining
the value of the imported goods has always been a challenge. The World Trade
Organisation (WTO) came up with rules to solve the problem.
In
their website they have written that “for importers, the process of estimating
the value of a product at customs presents problems that can be just as serious
as the actual duty rate charged.
The
WTO agreement on customs valuation aims for a fair, uniform and neutral system
for the valuation of goods for customs purposes — a system that conforms to
commercial realities, and which outlaws the use of arbitrary or fictitious
customs values”. In the quotation WTO has pointed out two challenges which are
establishing the value of the product and the rate of duty.
Valuations
of imported goods is a wide topic, but let us discuss the methods of valuation
of customs goods to see if in all instances TRA is justified in increasing the
value of goods.
Before
going into details, it is important for the readers who are not familiar with
customs laws to understand that basing taxes on imported goods any revenue
authority must first establish the value of the imported goods if the taxes of
such goods are based on the value (ad valorem) and secondly establish the
applicable tax rate (duty rate or tariff).
The
value of the goods is established by the valuation methods which is today’s
topic. The rates are provided under the law which provides a description
(classification) of goods and the rate of tax applicable to those goods.
It
is up to the importer and the revenue authority to see under which
classification the goods fall in as provided by the law. This classification is
commonly referred to as Harmonized System Code (HS .Code.) The HS Code provides
the classification of goods and the rate of tax of such goods.
The
East African Community Customs Management Act, 2004 (EACCMA) provides for the
methods of determining the value of the customs goods. Section 122 of EACCMA is
clear that where imported goods are liable to import duty, the value of such
goods shall be determined in accordance with the Fourth Schedule and import
duty shall be paid on that value. The Fourth Schedule is almost a reproduction
of the WTO Rules on customs valuation which are provided under the Agreement on
Implementation of Article VII of The General Agreement on Tariffs and Trade,
1994.
There
are six methods of valuation of customs goods, namely; Transaction Value,
Transaction Value of Identical Goods, Transaction Value of Similar Goods,
Deductive Value, Computed Value and Fall Back Value.
The
six methods are arranged in such a way that one cannot just pick one method to
determine the value of the imported goods, the law requires that one method be
exhausted and thereafter the second method be applied.
In
other words if the circumstances do not allow the use of the Transaction value
method, which is the first method, then the second method of Transaction Value
of Identical Goods can be applied.
Today
let us discuss about the transaction value method.
Paragraph
2 of the 4th Schedule of EACCMA provides that “the customs value of imported
goods shall be the transaction value, which is the price actually paid or
payable for the goods when sold for export to the Partner state”.
The
term partner state is being used under the law to refer to members of East
African Community. In the wording of paragraph 2, to establish the value of the
imported goods one has to look at the price of the goods imported. Apart from
the price paid paragraph 9 of the same Schedule requires some of the costs to
be added to the price, for example commissions and brokerage if they are not
buying commissions and were not included in the price, the cost of transport to
the port of importation, loading and off-loading charges associated with the
transport of the goods, the cost of insurance and other items mentioned in the
law.
The
fact that the buyer and the seller are related is not in itself a ground for
regarding the transaction value as unacceptable. However, the importer has to
demonstrate that such price closely approximates to the transaction value in
sales to unrelated buyers of identical or goods. From the above brief
explanations on the transaction value method, it is clear that there are some
rules which are supposed to be followed before TRA increases the value of the
imported goods.
In
other words, there has to be a reason as to why TRA is increasing the value
other than the price shown on the invoice or receipt of the goods instead of
just jumping to the so called data base of prices which TRA has on a number of
similar or identical goods. By the provisions of section 122 (2) of EACCMA, the
importer is entitled to an explanation as to how the customs value of the
importer’s goods was determined. The importer can request for such an explanation
in writing.
This Article first appeared in The Citizen Newspaper of July
27, 2014
