This
booklet provides basic information on the revised valuation provisions of the
Customs Act,1969. It will be useful
to the importers of goods in Pakistan.
Although
there are six methods of valuing goods , this book concentrates on the
“transaction value method”, because most importers are able to use this
method in the vast majority of cases.
Value
for duty is normally referred to as “customs value” and is the amount on
which the ( percentage ) duty rates according to Pakistan Customs Tariff are
applied to calculate the amount of customs duty. The value for duty may not be
the same as the amount you pay for the imported goods, because certain additions
and adjustments to the price paid for the goods are sometimes necessary. Even if
the goods are imported free of import duty, the value for duty is still required
in order to calculate other taxes and levies and also for trade statistics
purposes compiled by the Federal Bureau of Statistics.
Pakistan
has adopted the new system of valuing imported goods based on an internationally
approved set of rules, under the General Agreement on Tariffs and Trade [GATT],
referred to as the Customs Valuation Code. Almost all the trading partners of
Pakistan apply the same basic rules for valuation of goods. Section 25 of the
Customs Act has been revised to conform to the Customs Valuation Code which
provides for a fair, uniform, and neutral system which determines the value of
imported goods in accordance with commercial realities and in which arbitrary or
fictitious Customs values are prohibited.
The
“transaction value” system
stipulates that the transaction value method must be used wherever possible. This method bases the customs value
on the “price” you pay for the imported goods. Certain amounts not included
in the price such as transportation, insurance, packing charges, royalties and
licence fees, assists, other payments etc. may have to be added to arrive at the
precise customs value.
Transaction
value of identical goods method
Transaction
value of similar goods method
Deductive value method
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Fall back method
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The
“transaction value method” is the method you will use, under sub-section (1)
of section 25 of the Customs Act, to determine the “customs value” (value
for duty) in most cases. First of all, make sure that you are not excluded or
ineligible from using this method. There are 3 requirements which must be met in
order to use the transaction value method. They are :
1. The goods must be subject to
a sale;
2. The sale must be for export
to Pakistan; and
3. The price paid or payable
must be determinable.
There
are in addition four limitations on the use of transaction value. The
transaction value method cannot be used if:
There are restrictions on the
disposition or use of the goods by the buyer other than
(a) those
imposed or required by law,
(b) those
that limit the geographical area in which the goods may be resold, or
(c) those
that do not affect the value of the goods.
The sale or price of goods is
subject to a condition or consideration
There are any subsequent
payments to the seller by the buyer unless an appropriate adjustment can be made under sub-section
2(e); and
If the buyer and seller are
related. This limitation will not be applicable if the importer can demonstrate
that the declared
customs value approximates a “test
value” under sub-section 3(b) of section 25 , or demonstrates to Customs’ satisfaction that the price
has not been influenced by the relationship.
If
all the requirements are met and none of the limitations apply, then the transaction value method is the
appropriate method of valuation of
imported goods. The next step is then to calculate the transaction or customs
value.
HOW
TO ARRIVE AT THE CUSTOMS VALUE?
The
next question to consider is that, besides the price you are paying for the
goods, what other expenses are you incurring in relation to the goods which are
not included in the price. The amount you pay to the supplier may not include
amounts on which you have to pay duty. The “price actually paid or payable”
is defined as the total payment made or to be made by the buyer to or for the
benefit of the seller for the imported goods. It is important to understand that
the “invoice” amount is not necessarily the “price actually paid or
payable as” that term is defined.
It
is, therefore, important that you include in the price actually paid or payable
all elements of it. For example if your purchase contract for goods involves
paying a certain price to the seller plus an amount to a third party to settle a
debt of the sellers to that third party, the invoice from the seller will not
necessarily reflect the full price actually paid or payable as it may not
include the debt paid to the third party. Nevertheless the debt paid on the seller’s behalf
should, in fact, be included in the price actually paid or payable calculation.
It
is essential that you carefully review the price you pay to the seller /
supplier so as to add other charges, commissions etc. not included in the price
to arrive at the correct transaction value for levy of duty.
DEDUCTIONS FROM THE PRICE
PAID
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price, for the purpose of value for duty, is the importer’s net price at the
time of importation. The buying
commission ( or discount ) shown on the invoice is excluded and the net
amount payable is the purchase price and the value for customs purposes. On the
other hand, if the commission or discount is in the form of rebate payable at a
later date if certain conditions are met, it will be included in the transaction
value.
ADDITIONS TO THE PRICE PAID
There
are a number of charges which must be added to the price actually paid or
payable and thus will be included in the customs value of the goods even though
they are not part of the “invoice” price of the imported goods and are
normally charged separately under a different contract.
These
charges are as follows :
Cost of
transport, excluding inland freight.
Loading, unloading, and handling charges
at the place of shipment.
Cost of
insurance.
Commissions
including indenting commissions and brokerage.
Cost of
containers.
Cost of packing, labour and material.
Royalties
and Licence Fees paid by you that are related to the goods as a condition of
sale, no matter when or whom.
Goods or
services, commonly referred to as “assists”
provided free or at a reduced cost by the buyer directly or indirectly to
the seller. Examples of assists are moulds, tools, dies, raw materials,
designs etc.
Any
additional payment based on the resale, use or disposal of the goods that is
made to the seller directly or indirectly by the buyer.
Transaction value of
identical goods method
Under
this method provided in sub-section (5) of section 25, the dutiable value is
based on the transaction value of other “identical” goods which have been
imported in Pakistan at or about the same time as your own. This method requires information on
values declared to Customs for imports of identical goods, that is the goods
which are the same in all respects including physical characteristics, quality
and reputation. The customs value of the identical goods will be adjusted to
give allowance for the differences in the trade level of the purchasers, in the
quantities purchased, in the costs of transporting the goods, insurance etc.
Customs
value ( dutiable or assessable value ) under this method would usually be
calculated in conjunction with the Customs officials.
This
method, as provided in sub-section (6) of section 25, is essentially the same as
the “identical goods method” outlined above except that the value is based
on the customs value of similar goods; that is goods which although not alike in
all respects, have like characteristics and like component materials, perform
the same functions and closely resemble and are commercially interchangeable
with the goods you have imported. Adjustments can be made to the value of
similar goods based by giving allowance for the difference in the trade level,
quantities, costs of transportation, insurance etc.
Under
the deductive value method, under sub-section (7) of section 25, the customs
value ( dutiable or assessable value ) is based on the importer’s most common
selling price of the imported goods to Pakistani customers. From this “selling
price” is deducted the amount which represents the average profit and general
expenses involved in selling the goods in Pakistan or a commission, whichever
applies in the circumstances .
In
addition to the normal/usual general expenses to the extent they are not
included as an expense in your financial records, deductions may be made for the
following:
The
amounts of duty and taxes paid on the imported goods;
Transportation
and insurance cost from the place of importation;
Warehousing,
selling and distribution costs; and
Repackaging
cost before sale.
It
must be clear that the purpose behind this method is to determine what the cost
of the goods would have been had they been purchased, in the same condition as
when imported, from an unrelated foreign supplier. The deductive method may
initially require you to use an estimate of the value for duty and assess the
goods provisionally. The assessment may be finalized at a later date when sales
data is available.
An
example of a situation where the deductive value method might be used is the
case where an importer has received goods on a consignment basis and does not
know the precise amount he will pay to the supplier.
Computed value method
The
computed value, as mentioned in sub-section (8), is the cost of production of
the imported goods plus an amount for normal profit and general expenses of the
seller in the exporting country when selling the same type of goods to Pakistani
customers.
In
order to use this method, you must have detailed knowledge of producing the
actual goods imported. As most producers / suppliers are reluctant to release
this information to any one outside their own organization, the use of this
valuation method will generally be limited to those importers who are related to
the supplier of the imported goods and where the supplier is also the
manufacturer of the goods in question. The
computed value method will rarely be used for goods imported in Pakistan.
However if you are in a position to use this method, the law provides that you
can choose to use it before considering the Deductive value method.
The
computed value method does have the advantage of giving you the assessable value
before you import the goods.
Fall Back method
If
you are not in a position to use the primary
method of valuation
( transaction value ) under sub-section (1) of section 25 of the Act and the
technical requirements of the subsequent four methods prevent you from
determining the customs value of the imported goods under sub-sections (5) , (6)
, (7) and (8), the Fall Back method, sub-section (9) must be applied.
This
method does not provide specific rules for determining customs value but
stipulates that one of the other five methods is to be applied in a flexible
manner.
Used
goods that have not been sold in a normal transaction will most likely be valued
under the Fall Back method.
In
using the Fall Back method, the
overriding principles of the GATT Agreement must be respected. That is, a value
determined under this method should be fair, reasonable, neutral and reflect
commercial reality.
As
an importer of goods into Pakistan you are responsible for the assessment of
your duty and tax liability on the goods you import. This means that that you
must prepare, or authorize an agent to prepare, the necessary documents for
presentation to Customs.
These
documents must be properly completed and must accurately reflect the assessable
value of the goods on which the duty and tax liability is calculated .
The
law also requires that you maintain complete records of every import
transaction. These records not only include Customs documents but all of your
financial and business records relating to the sale, purchase and import of the
goods. These records must be maintained in Pakistan, at your place of business,
where they may be inspected by a Customs officer, and you may be required to
answer questions about them.
If Customs
do not agree with the customs value declared by an importer, Customs have the
right to ask for more evidence and seek clarifications. Where Customs are still
not satisfied, they may release the goods against sufficient guarantee/security
under section 81 of the Customs Act and refer the matter to the Valuation
Department for determination of an acceptable customs value.
The
main tool to ensure compliance under the new valuation system will be post
importation audit. You should be aware that the Valuation Department will not
audit an entry but rather will deal with the importer as an entity. Importers
selected for audit base on potential risk, which an incorrect entry may signal,
can expect all of their importations over a two to three years period to be
reviewed for accuracy and correctness.
Attached
is a step by step guide for using the “transaction value method” of
valuation of imported goods. In order to declare a proper transaction value,
every importer should review these questions in respect of their importations.
Additional guides for the other methods of valuation will be published in due
course.
If you have any questions or comments, please contact the office of the Controller of Customs Valuation at seventh floor, New Custom House, Karachi; or Custom House Nabha Road, Lahore.