Meaning
The official transaction price of imported goods establishes the financial basis upon which import duties and value-added taxes are calculated at the border. Determining the customs dutiable value is the responsibility of the General Administration of Customs, which verifies the accuracy of the declared invoices. The resulting valuation incorporates the price paid for the goods along with specific costs incurred before entry.
This standard ensures consistent revenue collection across all ports.
Valuation Method
Customs authorities employ a sequence of structured assessment techniques when the declared transaction value is rejected. If the primary method is not accepted, the customs dutiable value is calculated using the transaction value of identical or similar goods imported at the same time. When such comparisons are unavailable, the deductive or computed value methods are applied sequentially.
This system leaves the risk of arbitrary pricing adjustments with the importer.
Pricing Adjustment
Calculations must incorporate several additional expenses that the buyer incurs but are not included in the basic price. To arrive at the correct customs dutiable value, the importer must add the costs of transport, insurance, and royalties paid as a condition of sale. Any subsequent proceeds that accrue to the seller from the resale must also be included.
This adjustment ensures that all components of the economic exchange are taxed.
Compliance Burden
Importers face major operational and financial challenges if they fail to substantiate their declared pricing with appropriate documentation. Underestimating the customs dutiable value can lead to accusations of tax evasion, leading to delayed clearances and high storage fees at the port of entry. The customs authority has the power to hold shipments and demand cash deposits before releasing the goods.
This measure can freeze corporate working capital and disrupt the supply chain of a manufacturing plant. It is therefore essential to maintain a complete audit trail of contracts, bank records, and transport invoices. A single pricing dispute can halt production for weeks.
