Home ›› 31 Dec 2021 ›› Editorial
The GATT rules on the valuation of goods for customs purposes are contained in the Agreement on Customs Valuation. The agreement’s valuation system is based on simple and equitable criteria that take commercial practices into account. By requiring all WTO member countries to harmonize their national legislation on the basis of the agreement’s rules, it seeks to ensure uniformity in the application of the rules so that importers can assess with certainty in advance of imports the amounts of duties payable. The basic rule of the agreement is that the value for customs purposes should be based on the price actually paid or payable when sold for export to the country of importation e.g. invoice price, including costs and charges for, packaging and containers, commissions and brokerage except buying commissions, assists, e.g. materials or services provided free or at a reduced cost by the buyer in the production of the imported goods, royalties, license fees, cost of transport, insurance and related charges to the place of importation, if the country bases its valuation on CIF prices.
The Tokyo Round Agreement strictly limited the discretion available to the customs authority to reject transaction value to the small number of cases. This was a matter of concern to many developing countries. They consider that the rule unduly inhibited the ability of their customs administration to deal with the traders’ practice of undervaluing imported goods in order to reduce the incidence of customs duties. This was one of the reasons for the reluctance of a large number of developing countries to accede to the agreement in the pre-WTO period. The decision regarding cases where customs administrations “have reasons to doubt” the truth or accuracy of the declared value, adopted as a result of the initiative taken by developing countries during the Uruguay Round Negotiations, corrects the lacuna. The Tokyo Round Agreement placed the burden of proof on customs if it rejected the transaction value declared by the importer. The Uruguay Round decision shifts the burden of proof on to the importers when customs, on the basis of the information on prices and other data available to it, “has reasons to doubt the truth or accuracy of the particulars or of documents produced in support” of the declarations made by the importers.
In order to ensure that the transaction value is rejected by customs in such cases on an objective basis, the new agreement stipulates that national legislation should provide certain rights to importers. Firstly, where customs expresses doubts as to the truth or accuracy of a declared value, importers should have the right to provide an explanation, including documents or other evidence to prove that the value declared by the importers reflects the correct value of the goods. Secondly, where customs is not satisfied with the explanations given, importers should have the right to ask Customs to communicate them in writing its reasons for doubting the truth or accuracy of the declared value. This provision is intended to safeguard the interests of the importers, by giving them the right to appeal against the decision to the higher authorities and if necessary, to a tribunal or other independent body, within the customs administration.
The rule that transaction values declared by importers should be used for valuation of goods applies not only to arms-length transactions but also to transactions between related parties. In the latter transactions, which generally take place among transnational corporations and their subsidiaries or affiliates, prices are charged on the basis of transfer pricing which may not reflect the correct value of the imported goods. Even in such cases, the agreement requires customs to enter into consultation with the importer, in order to ascertain the type of relationship, the circumstances surrounding the transaction and whether the relationship has influenced the price. If customs after such examination finds that the relationship has not influenced the declared price, the transaction value is to be determined on the basis of those prices. In order to ensure that in practice the transaction value is not rejected simply on the grounds that the parties are related, the agreement gives importers the right to demand that the value should be accepted when they demonstrate that the value approximates the test values arrived at on the basis of customs value determined in the past import transactions occurring at about the same time between unrelated buyers and sellers of identical or similar goods; or deductive or computed values calculated for identical or similar goods.
There are other standards customs may use to determine dutiable value when it decides to reject the transaction value declared by the importer. In order to protect the interest of importers and to ensure that the value in such cases is determined on a fair and neutral basis, the agreement limits the discretion available to customs. Normally customs applies the standards in the sequential order.
Customs can normally reject the transaction value declared by importer on the following ground:-
The standards stated earlier that are to be used in sequential order now being discussed in short:-
The transaction value of identical goods: Where value cannot be determined on the basis of transaction value, transaction value of the identical goods be established.
The transaction value of similar goods: Where it is not possible to determine the value on the above method, it should be determined on the basis of similar goods.
Deductive value: Under this method the value is determined on the basis of the unit sale price in the domestic market of the imported goods being valued after making deductions for such elements as profits, customs duties and taxes, transport, insurances and other expenses incurred in the country of importation.
Computed value: The computed value is determined by adding to the cost of producing the goods being valued, an amount for profit and general expenses equal to that usually reflected in the sale of goods of the same class or kind as the goods being valued which are made by the producers in the country of exportation for export to the country of importation.
Where customs value cannot be determined by any of the four methods discussed above, it can be determined by using any of the previous method in a flexible manner, provided that the criteria used are consistent with Article VII of the GATT.
The basic aim of the agreement is to protect the interests of honest traders by requiring that customs should accept for determining dutiable value the price actually paid by the importer in a particular transaction. Actually the price determination is one of the major tools used by customs to detect whether a money laundering attempt has been made or not. Under invoicing or over invoicing generally takes place in case of importation or exportation. This could be avoided by verifying the invoice price through the office of the commercial wing stationed in our foreign missions. In the past it was in operation, but for some unknown reason this has been discontinued. Once the system is reintroduced, money laundering through imports and exports will cease to exist. The agreement recognises that the price obtained by different importers for the same products may vary. The mere fact that the price obtained by a particular importer is lower than that at which other importers have imported the product cannot be used as a ground for rejection of the transaction value. Customs can reject the transaction value only if it has doubt or accuracy of the declared price of the imported goods. However, in such situation the importer is to give an opportunity to justify the price and if the justification is not accepted, customs authority shall give them in writing the reasons for rejection of the transaction value. Further, by providing importers the right to consult throughout all stages of the declared value, the agreement ensures that the discretion available to customs for scrutinizing declared value is used objectively. The agreement further provides the right to withdraw the imported goods when there is a long delay in the customs to determine the value, by providing sufficient quantities in the form of surety deposit covering the customs duties for which goods may be liable. In addition to that the importer should have a commitment from customs about confidential information disclosed to them remain confidential.
The importer should have a right to appeal to the higher authority against determination of transaction value by customs.
The writer is former Director General of EPB. He can be contacted at [email protected]
