What is Customs Valuation and why should it be strictly adhered to?

Customs valuation is the process where customs authorities assign a monetary value to a good
or service for the purposes of import or export. Generally, customs authorities engage in this process as a means of protecting tariff concessions, collecting revenue for the governing authority, implementing trade policy, and protecting public health and safety.

Customs duties, and the need for customs valuation, have existed for thousands of years among different cultures, with evidence of their use in the Roman Empire, the Han Dynasty, and the Indian sub-continent. The first recorded customs tariff was from 136 in Palmyra, an oasis city in the Syrian desert.

Beginning near the end of the 20th century, the procedures used throughout most of the world for customs valuation were codified in the Agreement on Implementation of Article VII of
the General Agreement on Tariffs and Trade (GATT) 1994 (“the Agreement”).

The methods of customs valuation, in descending order of precedence, should strictly be applied as follows:

1. Transaction Value of Merchandise in Question - price actually paid or payable for the goods sold.
2. Transaction Value of Identical Merchandise
3. Transaction Value of Similar Merchandise
4. Deductive Value
5. Computed Value
6. Derivative Method

This hierarchy is codified in domestic legislation.

There are high potential risks associated with customs valuation.

• It is easy to jump the steps and base your individual valuation on a particular industry norm.
• Cost elements may not all be included in the required correct cost price of the imported product.
• The importer may not adjust costs on Incoterms2020 used to arrive at the valuation point for such imported goods.
• Incorrect valuation leads to underpayment of customs duties and imports VAT with potential high penalties and interests demanded by SARS, which also leads to overpayment of the same applies.

SNG Grant Thornton Tax Advisory Services have researched mistakes and areas overlooked by importers, clearing agents, and owners of imported goods in this area. Research is for a customs health check to look at the most risky areas in the import value chain processes for high customs compliance and mitigating business risks.

We can also equip personnel in the customs area in your company with training in order to detect potential risks first hand in their duties.