Tanzania International Tax Law: Understanding the import taxation regime (3)
From the discussion of the previous two parts of this mini-series on Tanzania’s import taxation regime and, in particular, the import taxes categorised therein, it is clear that the customs value (or, the Cost, Insurance and Freight (CIF))—primarily, the actual value of the goods when they are imported—hugely impacts the taxes that are payable during importation.
For cases where the value of imported goods cannot be determined, section 37(2)(a) and 122 of the East African Community Customs Management Act, 2004 (hereinafter, ‘EACCMA 2004’), read together with the Fourth Schedule thereto, provides for ad-valorem valuation. In this regard, what may be used is the transaction value of identical goods, which is the price actually paid or payable for the goods when sold for export at or about the time of valuation.
But what are “identical goods”? Part 1 of the Fourth Schedule to the EACCMA 2004 defines identical goods to mean “goods which are the same in all respects, including physical characteristics, quality and reputation”. However, minor differences in appearance are not sufficient to preclude goods from being considered as identical.
Still, there are cases where the customs value of imported goods cannot be ascertained from the transaction value of identical goods.
Here, the transaction value of similar goods—sold for export and exported at or about the same time as the goods being valued—may be used to arrive at the customs value.
The term “similar goods” is defined in Part 1 of the Fourth Schedule to the EACCMA 2004 to mean “goods which, although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable”.
It should be noted that “identical goods” and “similar goods” exclude “goods which incorporate or reflect engineering, development, artwork, design work, and plans and sketches for which no adjustment has been made under [the Fourth Schedule to the EACCMA 2004]”.
What happens if the customs value cannot be determined from any of the above methods? In this scenario, we can again seek guidance from the EACCMA 2004 and, in particular, Paragraphs 5, 6 and 7 of the Fourth Schedule which provides for the following methods in order of preference: deductive value (value derived from the selling price of the goods in the country of importation), computed value (based on the built-up cost of the imported goods), and fall-back value (for exceptional cases where neither the deductive value nor the computed value is applicable).
Accordingly, it may be necessary to depend on e-commerce stores to ascertain the cost of a particular good but there is the challenge of not getting a fair value of the cost of the good. This is so because marketing and advertising costs as well as commissions may have been incorporated in the price of goods in e-commerce stores.
There is leeway for the importer to seek explanation in writing from the proper officer as to how the customs value of the imported goods was computed. This leeway, provided for under section 122(2) of the EACCMA 2004, is commonly used in cases where the imported goods are uncommon goods—highly specialized machines and equipment, for example. Unfortunately, there are no time limits set down in the EACCMA 2004 for the proper officer to provide the explanation.
Having said that, it’s crucial to note that not every imported good is subject to import duty; in fact, the Fifth Schedule to the EACCMA 2004 contains specified exemptions for certain imported goods.
These include, but are not limited to, household and personal effects imported under diplomatic and first-arrival privileges; goods and equipment imported by donor agencies, international and regional organizations under bilateral or multilateral arrangements; and goods and equipment for use in aid-funded projects.
Potential importers need to be aware of the various import taxes and levies discussed in part two of this mini-series: import duty (customs duty), excise duty, VAT, Railway Development Levy, and customs processing fees.
They also need to understand that the big difference arising between the original cost and the final cost of the goods imported into Tanzania is informed by the computation of taxable values on an additive basis.
In a nutshell, the customs value is an important element in ascertaining the correct amount of any import taxes to be paid on imported goods.
Considering the significant impact these taxes may have on, among others, cash flows, it is useful to monitor developments, and to seek the assistance of tax counsel, on matters of customs and import taxes, including the resolution of customs disputes.
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Paul Kibuuka ([email protected]), a tax and corporate lawyer and tax policy analyst, is the chief executive of Isidora & Company and the Executive Director of the Taxation and Development Research Bureau.
