If you’ve been involved in international trade for some time, you are likely familiar with customs duty and its associated charges. However, if this is your first time encountering the term, don’t worry. This detailed guide will walk you through what customs duty entails and how you can calculate customs duty charges in Nigeria like a pro. Knowing how to calculate customs duty in Nigeria would help you reduce the risks of over-billing while saving more money. 

Understanding Customs Duty in Nigeria

Customs duty is a mandatory tariff imposed by the Nigerian government on all goods imported into the country. This levy applies universally, regardless of the country of origin—be it China, the United States, or elsewhere. To clear your shipments at Nigerian ports, the payment of customs duty is essential. The amount payable is determined based on the Cost, Insurance, and Freight (CIF) valuation method, which includes the cost of the goods, insurance, and freight charges. 

Why is Customs Duty Important?

Customs duties are more than just taxes on imported goods; they play a multifaceted role in shaping a nation’s economy and safeguarding its interests. Below are a few of the many good reasons why customs duties are so important:

1. Revenue Generation

Customs duties are a significant source of income for governments. The funds collected help finance essential public services such as healthcare, education, and infrastructure development. By taxing imported goods, the government can reduce its reliance on other forms of taxation, distributing the fiscal responsibility more evenly across different sectors.

2. Trade Regulation

By imposing duties on imports, customs authorities can monitor and control the flow of goods into the country. This regulation ensures that all imports comply with national standards, protecting consumers from substandard or harmful products. Additionally, it helps maintain economic stability by preventing market saturation with foreign goods, which could disrupt local economies.

3. Protection of Local Industries

Customs duties serve as a buffer for domestic industries against foreign competition. By taxing imported goods, these duties increase the market price of foreign products, making locally produced items more competitive. This protection encourages the growth of domestic industries, leading to job creation and economic diversification.

4. Consumer Protection

Beyond economic factors, customs duties also play a role in consumer safety. By enforcing compliance with technical quality standards and health regulations, customs authorities help ensure that the products entering the country are safe for consumption and use. This oversight protects consumers from potential hazards associated with inferior or dangerous goods.

In summary, customs duties are a vital tool for governments to generate revenue, regulate trade, protect domestic industries, and ensure consumer safety. Understanding their importance helps appreciate the complex dynamics of international trade and economic policy.

Read Also: Most Common Mistakes Importers Make and How to Avoid them

Key Terms and Their Meanings

Before diving into the calculations, it’s essential to understand some key terms used in customs duty assessments:

1. FOB (Freight on Board):

FOB represents the total cost incurred to bring goods to the shipping terminal before they are transported to Nigeria. This includes packaging, loading, and inland transportation within the country of origin.

Formula: FOB = Total Ancillary Charges + Total Value of Goods

2. Freight:

This is the cost of transporting goods from the exporting country to Nigeria, whether by road, sea, or air.

3. CIF (Cost, Insurance, and Freight):

CIF is the total cost of the imported items, including insurance and freight charges. It represents the value of the goods when they arrive at a Nigerian port.Formula: CIF = Cost of Items + Insurance (0.5% of C+F) + Freight Cost

Read: How to Calculate Chargeable Weight in Air Freight

4. Value Added Tax (VAT):

VAT is an additional tax imposed on the total cost of importing goods, currently set at 7.5%, but expected to rise to 10%, 12.5%, or 15% under the proposed Nigeria VAT reforms 2025.

Formula: VAT = 7.5% x (CIF + Import Duty + Surcharge + CISS + ETLS)

5. Import Duty (ID):

A tariff levied based on the type of goods being imported, determined by the Harmonized System (HS) code. Duty rates typically range between 5% and 20%.

Formula: ID = x% of CIF

6. Surcharge:

A secondary tax imposed to support port infrastructure, calculated as 7% of the import duty amount.

Formula: Surcharge = 7% x Import Duty

7. CISS (Comprehensive Import Supervision Scheme):

A regulatory fee charged at 1% of the FOB value of the shipment.

8. ETLS (ECOWAS Trade Liberalisation Scheme):

A regional levy applied to goods imported from non-ECOWAS member states at a rate of 0.5% of CIF.

Quick Read: Duty Underpayment: How to Escape being issued Customs Debit Note

How to Calculate Customs Duty Charge in Nigeria

We will use an Illustration of Mr. Sodiq Adeleke, an eCommerce businessman who imports and sells Fabrics in Nigeria, for example. 

Sodiq ordered 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 Charges, the first step is to request 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).

Read Also: Understanding the Importance of an HS Code 

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

Read Also: 8 Reasons Why Air Freight is Considered the Best Choice

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

The calculation is simplified and easy enough to follow.

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. This is for all import shipment to Nigeria before such manifest are submitted to the Nigerian Customs Service Department for proper monitoring of the import duty.

Impact of Nigeria’s 2025 Tax Reforms

As of January 2025, the Nigerian government has not implemented any changes to the VAT rate, which remains at 7.5%

However, there are ongoing discussions regarding the allocation of VAT revenue among Nigeria’s 36 states. The proposed Tax Reform Bill seeks to revise the VAT derivation formula to allocate revenue based on the location of goods and services consumption, rather than the current focus on the situs of business operations or corporate headquarters

This proposal has sparked debates, particularly between northern and southern states, concerning economic disparities and revenue distribution

Read Also: Reasons why you need a Reliable Freight Forwarder

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