Simple Way to to Calculate Customs Duty Charges & VAT in Nigeria

If you have been in international trade for a while, you’d have been deeply acquainted with the term Customs Duty and the charges that follow. For the benefit of those who are seeing this for the first time, this post will guide you to understanding exactly what customs duty is all about and how to calculate Customs Duty Charges in Nigeria just like your Customs Agents would.

You will also understand the reason for each charges.

So, whether you’re shipping from China to Nigeria, from the United States of America, or any part of the world, you will come across Customs and pay duty to get your shipments out of the ports. This post reveals in clear terms how you can calculate customs duty charges in Nigeria by yourself and in the easiest way possible. 

Although it depends on the practice that takes place in each country, Customs Duty calculations are simply carried out dependent 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 an adequate understanding by both parties (Freight forwarder and the Customer) in order to avoid occurring and recurring challenges. At Bowa-gate Global Ltd, we ensure that we open up on all details of the calculation especially for those of our clients who are not totally privy to customs duty charges. 

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 detail on how to calculate customs duty charges in Nigeria (with a typical example). Knowing how to calculate customs duty in Nigeria would help you reduce the risks of over-billing while saving more money. 

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

Various Terms and their Meanings

FOB (Freight on Board) – This refers to all costs incurred 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 (That is, if you’re transacting in Nigeria. Use your country currency where applicable). 

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 Airfreight. 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 the 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.

Read: How to Calculate Chargeable Weight in Air Freight

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).

calculate customs duty charge

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

How to Calculate Customs Duty Charges 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.

Read AlsoReasons why you need a Reliable Freight Forwarder

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