How to calculate duties and taxes?
What is a duty?
“Duty” means a charge levied and collected on goods imported and exported in accordance with Customs Tariff Regulations issued in accordance with the International Harmonized Commodity Classification and Nomenclature.
What is a tax?
“Tax” means a charge levied and collected on goods imported and exported in accordance with the tax laws in force.
Types of duties and taxes payable to Customs
The following five (5) types of duties and taxes are payable to Customs:
They are: –
- Customs duty
- Excise tax,
- Value added tax,
- Surcharge and
- Withholding tax
- Social development tax
However, goods exempted from tax under each tax law are not subject to the type of tax for which they are exempted.
What is the meaning of duty and tax-paying value?
The duty and tax-paying value is the value of the goods used to calculate customs duties and taxes for goods imported into or exported from a country, and is the total cost paid for the goods up to the first entry into the customs territory or the last exit from the customs territory.
CIF Price = FOB Price + Insurance Cost + Transportation Cost + Other Additional Costs
After determining the customs value, in order to calculate the duties and taxes to be paid, it is necessary to know the tariff rate to which the goods are classified. This can be found in the Customs Tariff Regulation issued following the Unified Commodity Classification and Nomenclature System, which specifies the duty rates to be paid for all goods.
In general, the rates of duties and taxes according to the current laws are as follows.
These are:
Customs Duty (0% – 35%)
Excise Tax (0% – ),
Value Added Tax (15%),
Surcharge (10%) and
Withholding Tax (3%)
Social Development Tax (3%)
Once the customs value and tariff are determined, the duties and taxes payable are calculated in the following order:
Customs duty = Customs value x Tax rate = A
Excise tax = (Customs value + A) x Excise tax rate = B
VAT = (Customs value + A + B) x VAT rate = C
Surcharge tax = (Customs value + A + B + C) x Surcharge tax rate = D
Withholding tax = Customs value x Withholding tax rate = E
Social development tax = Customs value x Social development rate = F
This means that the duties and taxes payable will be = A+B+C+D+E+F
Let’s take an example,
Let’s calculate the duties and taxes payable by an importer who imports an LG 43-inch television from China.
Therefore, first we determine the customs value.
If the transaction price of the LG 43 inch television is 578.25 USD or 18,504 Birr multiplied by the current exchange rate and additional charges are as per Regulation 158/2011;
Insurance cost = 370.08
Transportation = 952.20
Loading and unloading costs = 952.20
The duty and tax-paying value (DPV) of the goods will be 18,504 + 370.08 + 952.20 + 952.20 = 20,778.48.
Next, we calculate the duties and taxes payable on the goods in the following order.
Tax = 20778.48 x 10% = 2077.85
Excise Tax = (20778.48 + 2077.85 ) x 10% = 2285.63
Value Added Tax/VAT/ = (20778.48 + 2077.85 + 2285.63 ) x 15% = 3771.29
Surtax = (20778.48 + 2077.85 + 2285.63 + 3771.29) x 10% = 2891.32
Withholding Tax = 20778.48 x 3% = 623.35
Social Development = 20778.48 x 0% = 0
Taxes and Taxes Payable = 2077.85 + 2285.63 + 3771.29 + 2891.32 + 623.35 + 0 = 11649.44
Therefore, the duties and taxes paid by this importer will be 11649.34 Birr.
