Meaning
Valuation processes used by customs authorities to determine the import duties applicable to incoming cargo fall under the classification of fiscal calculations. The outcome of a tariff assessment depends on the correct classification of the goods under the harmonized system of coding. This determination establishes the tax rate that the importer must pay to clear the shipment for domestic trade.
It prevents the underpayment of taxes and ensures fair competition in the local market.
Valuation Method
Customs officers calculate the duties based on the transaction value of the goods as shown on the commercial invoice. This value includes the cost of the goods, freight, and insurance to the destination port.
Audit Risk
Importers run the risk of retroactive reassessment if customs authorities audit the files and find that incorrect codes were used. A retrospective tariff assessment can result in demands for unpaid duties and heavy penalties that are issued long after the goods have been sold. This risk requires companies to maintain accurate records and seek advance rulings from customs officials on complex product classifications.
The financial damage from a post-clearance audit can wipe out the profitability of a business line.
Financial Planning
Accurate calculations of these duties allow companies to predict the landed cost of their products and set appropriate prices. This planning is necessary to ensure that the import operation remains profitable under changing tariff structures in different target markets.
