How to calculate the Customs Duty and Other taxes of a commodity

General Rule:
The Customs Duty and Tax of an Item is calculated based of the cif value . refer to the Customs Proclamation 60/89 , chap 8 , article 47
The duty paying value of any import goods shall be the actual total costs of the goods ( i.e price of the goods , transport cost and insurance premium)

FOB ( Free On board ) :

This term mostly used to show the price of the goods only . It does not include the marine or air transport cost . FOB price is one of the element to build the customs duty paying value.

FR ( Freight cost)

This term is used to show the transport cost paid for a particular consignment from port of departure to port of destination . In most cases the value of FR is shown on the commercial invoice separately .
Seldom , if the transport cost is paid by local currency an extra invoice will be issued by the carrier which eventually submitted to customs .This type of transport cost is expressed as External Freight Cost . There is also an Inland transport cost which is incurred in the customs duty paying value computation For instance , the inland transport cost from Djibouti port to GALAFI port Has a value ( 220*.0452*quintal) . This cost is also added in the computation of the Customs DPV.

Insurance : The insurance premium is an other ingredient in assessing the customs DPV.

CIF : Cost , Insurance and Freight

This is the base value for Custom duty and tax Calculation . The power to assess the customs duty paying value of a commodity is given to the customs ( Refe. Proclamation 60/89 part 2 article 6) There fore , for every item imported in to the country the duty paying value is calculated as follows:

DPV(cif) = FOB(curr) + Freight ( curr)+inland transport + Insu

Where FOB : is the price of the goods
Freight: is the transport cost + inland transport ( if any)
Insu.: is the insurance premium
Curr: is (currency) Exchange rate applied

Value Assessment for goods coming by vesse.

DPV= FOB ( curr) + Freight + Insurance
Freight includes the External freight and internal freight
External freight : is the cost of transport from the departure to destination
Inland freight : is the cost of transport from the destination to the first border office of Ethiopia.

i.e for goods that come through GALAFI frontier office
the value of internal freight = 220*0.0452*quintal
for goods that come through DEWELE frontier office
the value of internal freight = 130*.0452*quintal

Example :
The value of the goods is 1000.00 eur
The value of the transport cost is 2200 birr
The value of the insurance premium is 800 birr
The gross kg of the consignment equals to 12000kg
The Inland freight will be =220*.04252*(12000/100)
Exchange rate eur=10.00

DPV= 1000(10)+2200+(220*.0452*(12000/100))+800
10000+2200+1193.28+800= 14193.28

Value Assessment for goods coming by Air
DPV = FOB ( Curr) +(Freight *1/3)+ insurance

Freight value will be reduced to one third of the total value of the transport cost . Because of the directive given by Ministry of Finance
There fore , in order to calculate the freight value of the consignment

1. First , take the whole amount and convert it in to birr .
2. Second , divided the result figure by three(3)
3. Third , calculate the duty paying value

Example :
The value of the goods is 1000.00 eur
The value of the transport cost is 2100 birr
The value of the insurance premium is 800 birr
Exchange rate 1eur=10.00
Then ,
DPV = FOB + FR/3 + INS
DPV= (1000.00X10)+2100/3+800
DPV=10000+7100+800
DPV=17900

General formula to calculate the Customs duty and other taxes

Customs Duty :

is the rate shown on the tariff book , except items which are free of customs duty. currently the customs duty of a commodity is between 5 to 35 %, Customs duty …………5 %, 10% , 20 %, 30% , 35%

Excise tax :

is an indirect tax imposed on certain items ( refer the customs national tariff book page No 665. The minimum is 10% and the maximum is 100%

VAT (value added tax)

VAT is another type of levy on the amount a firm adds to the price of a commodity during production and distribution .However, the VAT which is applied on import goods is based on the lump sum of the value of commodity incorporating with other taxes .
In general, Value added tax has the following formula
VAT= (DPV+ CUSTOMS DUTY + EXCISE TAX ) * VAT RATE
VAT RATE = 15 %
Note: some items are exempted from VAT

With-holding tax(WHT)

Is a type of tax related to the inland revenue authority . customs is authorized to collect this tax on behalf of INLAND REVENUE.
The rate for with-holding tax = 3%
WHT= CIF * 3%

Sur_tax

Is imposed on certain items mostly on finished goods items (applied starting from April 11/2007.
The rate for sur_tax = 10 % from cumulative cif value
In order to calculate sur_tax first get the cif value then
Duty base value for sur_tax = ( Cif + customs duty + excise tax + vat )
Surtax = Duty base value X 10%

General Customs duty and tax calculation formula

DPV X CUDU = A
(DPV + A)X EXTA = B
( DPV +A+B ) X VAT = C
(DPV+A+B+C) X SURTAX = D
DPV X WHT = E
-----------------------------------------
TOTAL PAYABLE A+B+C+D+E

Where DPV= Duty paying value
CUDU= customs duty rate
EXTA = excise tax rate
VAT = value added tax rate
SURTAX=surtax
WHT = with-holding tax rate

Example:
Let dpv =10000
And let the commodity code be =85281210
Then , calculate the customs duty and other taxes
--------------------------------------------------
85281210 cudu=30% , exta=10% , vat=15 %, surtax=10% , wht=3%
    10000 x 30%     = 3000.00
    (10000 + 3000)x 10 %     = 1300.00
   (1000 + 3000+1300) x 15 %     = 2145.00
     (1000 + 3000+1300+2145) x 10%  =1644.5
   10000 x 3%       = 300.00
--------------------------------------------
total duty and tax = 8389.5

We hope you will get the idea of calculating custom duty and other taxs on import items .

Elias k/mariam
Leader: Data dissemination team

Go to tax calculator page