What is Customs Valuation on Import?

On customs perspective, import is defined as entering goods into a country’s customs territory. When you order a product online and it’s shipped to you, or  when you return from traveling and carrying goods you bought from overseas, you are doing import activity.

Generally, all goods imported to Indonesia are subject to import duties, either imported by business or personal. But there are some exceptions, for example if you order a product from overseas, delivered by courier service and it’s worth no more than $100 (FOB), or goods that you bring with you from overseas with value no more than US$ 500, import duties for those goods are exempted. There are also other exception on import duties imposition due to customs facilitation given to personal or business.

Product Classification & Tariff

Classification and HS Code of a product determines applicable tariffs of import duties. There are two types of tariffs scheme, Most Favored Nations (MFN) and Free Trade Agreement (FTA). MFN scheme generally applies to importation from all countries in rest of the world, while FTA scheme applies only to importation from member countries of a Free Trade Agreements with certain provisions.

Import duty tariff also has two type, percentage (ad valorem) and specific. With Ad Valorem, import duty is calculated by multiplying the percentage tariff with the customs value of imported goods and with Specific tariff, it multiplies specific duties amount per unit of measurement with total quantity of imported goods. Most products in the Harmonized System Nomenclature use ad valorem (%) tariff, only few products with certain characteristic, like rice and sugar, use specific tariff.

Customs Valuation on Import

So, what actually customs value is? It is mainly value of imported goods an importer (buyer) has paid or should pay for, plus, if any, other related costs or payments made to the exporter (seller). This is the value that impor duty will be calculated using ad valorem tariff.

According to the WTO valuation agreement, GATT article VII, customs value should include the transaction value of imported goods (FOB), plus Insurance (I) and freight (F), constituting value of CIF Incoterm. So, if you’re already using CIF term on your trade, then you can find your customs value on commercial invoice. Otherwise, if you use term other than CIF, you should calculate your CIF equivalent value by adding or excluding some cost components to and from your invoice value.

For example, if you trade using FOB term, you must add freight and insurance cost proven by Bill of Lading (B/L) and Insurance Policy document. If importer is unable to show those documentations, Freight and Insurance cost will be determined by customs officials following this provision;

• Freight by origin shipment country:
  • ASEAN: 5% x FOB value
  • Non-ASEAN Asia or Australia: 10% x FOB value
  • Other countries: 15% x FOB Value
• Insurance of 0.5% x FOB value

Similiarly, with the other Incoterm such as, EXW, DDP, CIP etc. you need to exlude or include other costs to get CIF equivalent value. And on top of that, if there are any other related cost or payments, such as royalties, copyright and assists, to get the customs value, as long as those costs are not included yet in commercial invoice (FOB) value.

Valuation Method

According to GATT Valuation Agreement Art. VII, there are the six approach in Customs Valuation, Methods  I – Method VI. The approach that transaction value establishes customs value is the Method I. But if there are some factors that could affect fairness and accuracy of your transaction value i.e. special relationship between importer and exporter, then Method I can no longer be used. Instead, customs will be using the rest of the Methods in hierarchical order. These are the six method of customs valuation:

• Method I – Transaction value of imported goods
• Method II – Transaction value of identical goods
• Method III – Transaction value of similar goods
• Method IV – Deductive Value Method
• Method V – Computed Value Method
• Method VI – Fall-Back Method

Here are some recent regulations regarding customs valuation in Indonesia that you can download:

1. Minister Finance Regulation No. 160/PMK.04/2010 regarding Customs valuation for import duty calculation.
2. Minister Finance Regulation No. 34/PMK.04/2016 regarding amendment of regulation No. 160/PMK.04/2010.

I hope this short article could give you some knowledge and general understanding on customs valuation. If you need more information or advices on customs or international trade compliance, especially in relation to Indonesia, please send your query through our E-Consulting link or simply email us at [email protected]

You may also request us to arrange a training on a particular topic of customs and international trade through this Request link or email us at [email protected]