Custom duty Calculation Method
Custom duty Calculation Method
Calculation of custom duty has become an affair of prime importance in the case of exportation of fruits and vegetables from Pakistan. Exports of fruits and vegetables from Pakistan involve various regulatory frameworks, each with its own associated requirements to be followed through, including the calculation and payment of custom duties. Proper understanding of custom duties and its calculation helps exporters in effectively pricing their goods, adhering to regulations, and managing trade costs. This article gives a detailed overview of how the method of calculation for custom duties works for exporting fruits and vegetables.
Custom Duties for Exports:
Customs duties are taxes imposed on exports and imports by the government. The purpose of custom duties is to generate revenue, regulate flow of goods and protect small or local industries. In most agricultural products, like fruits and vegetables, duties are either very minimal or nil to encourage growth in their export. However, specific regulations and charges still apply depending upon the nature of the product and its destination.
Key Elements in Custom Duty Calculation
1. Determining the Export Value
The calculation of custom duty takes the first step with the determination of the export value of the goods. The export value is normally considered as the Free on Board (FOB) price, which represents the cost of goods at the port of export. The key factors in determining the export value include:
- Transaction Value: It is the price payable for fruits and vegetables reflecting the true market value. It is adjusted by the Federal Board of Revenue’s Valuation list.
- Exchange Rate: Where the transaction is in foreign currency, the transaction value is converted into Pakistani Rupees at the prevailing exchange rates of the State Bank of Pakistan.
2. Applicable Duty Rates
The dutiable rate on fruits and vegetables export depend on several factors, including:
- Product Classification: Each product is classified under a specific Harmonized System (HS) code as per the Customs Tariff issued by the SBP. The rate of duties will be applied as provided in their respective categorizations.
- Mango HS code → 0804.50
- Apple HS code → 0808.10
- Potato HS code → 0701.90
- Tomato HS code → 0702.00
- Trade Agreements: Pakistan has bilateral and multilateral trade agreements with various countries, which may offer reduced or zero custom duty rates on exports of agricultural products. The rates of customs tariff are informed through the Custom Tariff communicated by the FBR. For example, under the Indonesia-Pakistan Preferential Trade Agreement (IP-PTA), the agreement provides reduced or zero-duty access for a number of Pakistani agricultural products, including kinnows or mandarins and mangoes, thereby giving greater market access to exporters.
How to Calculate Custom Duty
The general formula for calculating custom duties on exports is:
Custom Duty = Export Value (FOB) × Duty Rate
- Free on Board (FOB) Value: The value of the goods at the port, excluding any insurance and freight cost.
- Duty Rate: The percentage determined by the Customs Tariff and applicable regulations.
Suppose you are exporting apples from Pakistan to the United States.
– HS Code: 0808.10 (Apples)
– Country of Origin: Pakistan
– Custom Duty Rate: 2% (as per US customs tariff schedule)
– FOB Value: $10,000
– Custom Duty Value: $10,000 x 2% = $200
– Additional Charges: None
– Total Custom Duty: $200
Note: Exporters can calculate custom duty by using Duty Calculator on the Federal Board of Revenue’s official website.
Exemptions and Concessions
The exporters of fruits and vegetables are entitled to several kinds of exemptions and concessions; the main ones are:
- Zero-Duty Regimes: Many fruits and vegetables are classified under zero-duty categories to encourage export growth. Most of the fruits and vegetables fall within the ambit of a zero-duty regime to foster growth in their exports. Mangoes are among the major fruit items exported by Pakistan. The country is trying to make them more competitive in the international market by bringing fresh mangoes under the zero-duty regime. They are exempted from paying customs duty, enabling exporters to quote more competitive prices and thus achieve more market share in international markets like the Middle East, Europe, and North America.
- Preferential Trade Agreements: Exports to countries with which Pakistan has free trade agreements are allowed at reduced or nil custom duties.
- Special Zones: Exports from Special Economic Zones (SEZs) or Export Processing Zones (EPZs) are exempted from customs duties. For example, The Faisalabad Industrial Estate Development & Management Company FIEDMC SEZ in Punjab is one of the prominent SEZs offering all kinds of benefits to exporters including exemption from customs duty and tax on import of capital goods-to the enterprises operating within its confines.
Documentation for Custom Duty Calculation
To accurately calculate custom duties, exporters must provide comprehensive documentation, including:
- Commercial Invoice: It reflects the terms as well as the amount of the sale.
- Packing List: It specifies the contents, packaging, and net weight of the consignment.
- Bill of Lading or Airway Bill: Acts as proof of shipment.
- Certificate of Origin: Based on this certificate, the supplies are checked for availing the preferential duty rates under the trade agreement.
Export Declaration Form (EDF): EDF is a statutory report prescribed by the SBP for the realization of export proceeds.
Compliance and Payment Procedures
Following are some of the customs regulations which exporters have to follow in order to comply with the stated procedures:
- Electronic Submission: Declarations with regard to exports and payment of duty are processed electronically through Pakistan Customs’ WeBOC (Web-Based One Customs).
- Payment Channels: The duties and charges are payable through the banks that are authorized for collection by the FBR, thus offering maximum security and possibility of tracking.
The exporters have to be duly informed about the exemption, relevant rates of duty, and the formalities prescribed by the national as well as international authorities. In this way, it would be easier for them to comply, work out the cost structure, and enhance competitiveness in global markets. Successful and profitable exporting requires, among other things, keeping up with regulatory changes affecting exports and keeping your documentation accurate.
