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What is customs value in exports?

Customs value is the value of goods imported into a country, and duties and taxes are calculated based on that. Learn more about its meaning and purpose.

An important step in the logistics process is custom clearance and related costs. Customs officials in India play an important role where they regulate the movement of goods across international borders. Their primary role is to ensure that all goods entering or leaving the country comply with required laws and regulations. Customs officials assess customs valuation and inspect cargo to check for prohibited or undeclared goods. They also verify the documentation of goods being imported or exported and collect any relevant duties and taxes.

What is the customs value?

Customs value is the value of imported goods as assessed by customs officials to determine the applicable duties and taxes. The customs valuation methods are used to determine the amount of import duty, excise duty, and other taxes that must be paid on goods. The customs value is determined based on the transaction value of imported goods, which is the price actually paid or payable. The transaction value includes any charges such as commissions, packing, and transportation costs incurred in bringing the goods to the port of import. Customs valuation rules are an important factor in international trade, as it determines the amount of duty and taxes that must be paid on imports. An accurate valuation of goods helps ensure fair trade and prevent under or over-valuation of goods.

What is the purpose of customs valuation?

Customs valuation helps in assessing applicable customs duties and taxes. Below are some of the key purposes of customs valuation:

Fair trade:

The customs valuation system ensures that imported goods are valued fairly and accurately, which helps to promote fair trade practices. When goods are undervalued, it can create an unfair advantage for importers, as they can avoid paying the full amount of customs duties and taxes.

Revenue collection:

Customs valuation plays a critical role in revenue collection for the government. An accurate valuation of imported goods ensures that the right amount of customs duties and taxes are collected, which boosts government revenue.

Trade statistics:

Customs valuation generates accurate trade statistics – essential for policy-making and trade negotiations. An accurate valuation of goods ensures that trade statistics are reliable, which helps to inform trade policies and negotiations.

Harmonization:

Customs valuation is important for harmonizing trade practices across different countries. The World Trade Organization (WTO) has established a set of rules for customs valuation, known as the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (GATT). These rules help to ensure that customs valuation practices are consistent across different countries, which helps to promote fair trade practices and prevent disputes¹.

Prevention of smuggling:

Customs valuation is also an important factor in preventing smuggling and other illegal activities. When goods are undervalued, it can create an incentive for smugglers to bring in items through illegal channels to avoid paying the full amount of customs duties and taxes.

How to calculate customs value?

There are different methods to calculate customs value for imported goods³:

Transaction value method:

This is the most common and preferred method of calculating customs value. Below are three sub-types:

• Transaction value of imported goods method: The customs value is based on the price that has been paid or is payable for imported goods.
• Transaction value of identical goods method: This is used when goods have the same quality and physical characteristics, and are produced in the same country where the goods are being valued.
• Transaction value of similar goods method: This method is used when goods to be valued are interchangeable, perform the same functions, and have close resemblance in terms of materials and characteristics.

Computed value method:

The computed value method is used when the transaction value cannot be determined or when the customs authorities have a reason to doubt the accuracy of the declared transaction value. Under this, the customs value is based on the cost of materials and production, plus a reasonable amount for profit and general expenses, and any additional costs such as packing costs, transportation costs, and other costs associated with bringing the goods to the port of import.

Residual value method:

The value calculated by this method must incorporate commercial reality. Factors like the relation between exporter and importer, the charge at which goods are provided to the consignee, deductions to the value of goods, and condition of goods impact this value.

Deductive value method:

This method is used when the customs value cannot be determined using the transaction value method. Here, the unit price is determined at which the goods can be sold to an unrelated customer or importer in the greatest aggregate quantity.

Example of calculation of customs value

Here is an example of a transaction value calculation for customs valuation:
Suppose a company imports 1,000 units of a product from a foreign supplier for a total cost of INR 10,000. The supplier charges an additional INR 1,000 for transportation and INR 500 for packaging, bringing the total cost to INR 11,500.

The customs value for this shipment will be:
Transaction value = INR 10,000 (value of imported goods) + INR 1,000 (transportation cost) + INR 500 (packaging cost) = INR 11,500

Assuming the customs duty rate for this product is 10%, the applicable customs duty will be:
Customs duty = INR 11,500 (transaction value) x 10% (duty rate) = INR 1,150

Customs value vs. declared value

Customs value and declared value are both important concepts in the export process.

· While customs value is the value of imported goods as determined by customs authorities to assess applicable duties and taxes, declared value is the value of goods as declared by the importer on customs documents such as bill of lading or commercial invoice.
· The customs value is typically calculated using the transaction value method. The declared value should be based on the actual price paid for goods and should include any additional costs, such as freight and insurance.
· It is important to note that declared value and customs value meaning may not always be the same. Customs authorities may adjust the declared value if they believe it is inaccurate or incomplete or if they have reason to suspect undervaluation of the goods.

Customs value and declared value are both important concepts and it is necessary for an exporter to understand this to avoid any hassles when selling internationally. Obtaining required documents, preparing for shipping, and paying necessary fees will help run a smooth export business. With e-commerce exports or cross-border online trade, selling across the world has become easier than before.

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Frequently Asked Questions

Does customs value include shipping cost?

Yes, customs value usually includes shipping cost.

What are the factors that can affect customs value?

Factors that affect customs value include price, shipping, and insurance.

What are intercompany deliveries?

Intercompany deliveries are shipments between different divisions of the same company.

Can customs value be zero?

Customs value can be zero only in specific circumstances, when the shipment comprises such documents and samples that have no commercial value.

Should an importer declare the value for those goods that are exempted from customs duty?

Yes, an importer should declare the value for exempted goods.

Can an importer disagree with the values determined by the customs authorities?

Yes, an importer can dispute the customs authorities’ determined values.

Published on April 25, 2023.

Sources:
1. https://www.cbec.gov.in/htdocs-cbec/customs/cs-gen-info/what-we-do
2. https://www.wcoomd.org/en/topics/valuation/overview/wto-valuation-agreement.aspx
3. https://www.dripcapital.com/en-us/resources/blog/what-is-customs-value
4. https://www.cbec.gov.in/htdocs-cbec/customs/cs-act/formatted-htmls/chapter-valuation-of-imported-goods

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