In the course of international shipping, be it from China, the United States of America or any part of the world, import duties and taxes are calculated on your shipment where necessary. Learn to calculate customs duty charge the easiest way possible.
Depending on the country, the calculations are done based on the type of item and its value.
Customs Duties and Taxes are probably one of the most complicated aspects of Freight Shipping to Nigeria or any part of the world. It requires a prior understanding by both parties (Freight forwarder and the Customer) in order to avoid occurring and recurring challenges.
Improper preparation for customs duties and taxes can cause a lot of hindrances, such as holdups at customs, unexpected costs, ruins on the experience of customers, and consequently ruins on the relationship with clients/customers.
In this post, you’ll get a simple cracked-down understanding of how to calculate customs duty charge in Nigeria (with a typical example).
There is a need to know how to calculate customs duty in Nigeria as this would help you reduce the risks of over-billing, while saving more money.
Various Terms and their Meanings
FOB (Freight on Board) – This refers to all cost incured to bring the goods or items of import to the terminal for shipment.
To use the FOB figure in calculating duty charge, you first convert to Naira (If in Nigeria. Use other currency if you’re in other countries).
FOB = Total Ancillary charges + Total value of goods.
Freight – The cost of transporting the items of importation to the port of designation, either by Road, Sea freight or Air freight. This is also converted to Naira (if in Nigeria. Use other currency if you’re in any other countries).
CIF – Cost of Imported items, Insurance value and Freight Charge
In order to get your CIF, simply add the cost of the items imported, the insurance value (e.g 0.5% of Cost & Freight) and cost of transportation, which is Freight).
Note: Insurance doesn’t come as a standard fee as it depends on your insurance company. Usually calculated on the sum of the cost of goods and freight, e.g. C + F
Value Added Tax (VAT) is a tax imposed on the supply of goods and services. Under Nigerian law, the tax is charged at currently 7.5% of the value of the taxable goods and services.
VAT = 7.5% x (CIF + ID + Surcharge + CISS + ETLS). Where;
Surface Duty (ID): This is often commonly referred to as import duty. This is how the abbreviation (ID) came to terms. It is a duty based on the kind of item imported. The value depends on the HS Code – usually 5%, 10%, 20%, etc. of the CIF Value.
ID = x% of CIF Value. Import Duty is the tax collected on imported goods by customs.
Surcharge: is an additional tax levied on the importation of goods. It is meant for port development.
Formula: 7% x Import Duty (ID).
CISS is an acronym for ‘Comprehensive Import Supervision Scheme’.
Formula: 1% of FOB value.
ETLS is an acronym for ECOWAS Tax Liberalisation Scheme. Also referred to as ECOWAS levy. It is the tax imposed on goods imported from non-ECOWAS member countries into ECOWAS member countries.
Formula: 0.5% x CIF.
Quick Read: How to Escape being issued Customs Debit Note
How to Calculate Duty Charge and Taxes
We will use an Illustration of Mr Sodiq Adeleke, an eCommerce businessman who imports and sell Fabrics in Nigeria, for example.
Sodiq ordered for Fabrics from Mumbai, India to the tune of $5,000. He paid other ancillary charges to the tune of $500. So total FOB = $5500.
In determining the Customs Duty Charge, the first step is to request for the HS Code. This will help you to know the tax receivable by customs on importing the goods, otherwise referred to as Surface Duty, i.e. ID (Import Duty).
HS Code for Fabric is 5407, so its Import Duty is calculated at a rate of 10%
Assuming the cost of shipping item (Freight) is $1200. Then, CF = $5000 + $1200
NB: Insurance is billed on both the Cost of Goods and Freight.
Therefore, assuming insurance charged by your insurance company on the goods is 0.5%, then,
Insurance = 0.005 x $6200 = $31
CIF (Cost + Insurance + Freight) = 5000 + 31 + 1200
Now, we have CIF = $6231
Ideally, this is converted to Naira, using the official rate for duty, i.e. N328.00
CIF – $6231 x N328 = N2,043,768.00
Cost of Fabrics also to be converted to Naira
Cost – $5000 x N328 = N1,640,000.00
FOB – $5500 x N328 = N1,804,000.00
Import Duty Rate: 10% of CIF = 0.1 x 2,043,768 = N204,376.8
Surcharge: 7% of Import Duty = 0.07 x 204,376.8 = N14,306.37
CISS: 1% of FOB = 0.01 x 1,804,000.00 = N18,040.00
ETLS: 0.5% of CIF = 0.005 x 2,043,768.00) = 0.05 x 20,437.68 = N10,218.84
VAT: 7.5% x (CIF + ID + Surcharge + CISS + ETLS)
0.075 x (2,043,768 + 204,376.8 + 14,306.37 + 18,040 + 10,218.84)
VAT = 0.075 x 2,290,710.01 = N171,803.25
To calculate Customs Duty, all charges are summed up including VAT thus,
ID + Surcharge + CISS + ETLS + VAT = Customs Duty.
204,376.8 + 14,306.37 + 16,400 + 10,218.84 + 171,803.25 = N417,105.26
The custom duty and other applicable taxes and levies in favour of the Federal Government of Nigeria is N417,105.26 payable by Mr. Sodiq Adeleke for the imported item.
The total to be spent all together which include CIF would now be Customs Charge + Cost of items to be landed in Nigeria, thus
N2,043,768.00 + N417,105.26 = N2,460,873.26
Shipping lines and airlines are requested by law to always state the Form M which entails M Form and BA numbers for each consignment on the ship’s/aircraft’s manifest, bill of lading or airway bill, as well as on all shipping documents for all import shipment to Nigeria before such manifest are submitted to the Nigerian Customs Service Department for proper monitoring of the import duty.
Let’s Guide You Through The Process
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