Import duty calculation is one thing anybody dealing with the Nigeria Customs Service needs to know very well. We have come across a handful of questions like;
- Import Duty
- CIF: Cost, Insurance & Freight
- Cost (FOB)
- Insurance
- Freight
- Taxes and Levies for Calculation of Customs Import Duty
- Comprehensive Import Supervision Scheme(CISS)
- Surcharge
- Surface Duty (ID)
- ECOWAS Trade Liberalization Scheme(ETLS)
- Value Added Tax (VAT)
- How to calculate Customs Import Duty in Nigeria
“What is Import duty?”
“How is Import duty calculated?”
“How to calculate Import duty for my goods”
“How much is the Nigeria Customs duty charge on Imported vehicles”
“How much is the customs duty rate on phones”..etc.
Knowing the answer to these questions is key to doing well in the business of clearing and forwarding.
This article will show you how to calculate Customs Import duty in Nigeria. So if you are a prospective clearing agent or someone who love to learn, this article is for you!
Import Duty
Import duty is a tax imposed by a government on goods imported from other countries. It can also be defined as a number of different taxes due on goods purchased from abroad.
In Nigeria, there are presently five (5) bands of tariff or duty rates which include:
0%, 5%, 10%, 20% and 35%
These duty rates are assigned to goods imported into the country based on their values or market worth.
Having known this, there are three (3) very important terms you need to know before proceeding to calculation of Import Duty. These terms comes into play right from the supplier from the exporting country.
CIF: Cost, Insurance & Freight
By definition, Cost, Insurance, and Freight (CIF) is an expense paid by a seller to cover the costs, insurance, and freight of a buyer’s order while it is in transit.
- CIF determines when the responsibility for goods transfers from the seller to the buyer.
- CIF is one of the international commerce terms known as Incoterms.
Now let’s breakdown these three (3) terms:
Cost (FOB)
This simply means ‘Free on Board’ otherwise known as ‘Cost’. FOB is the actual cost of the imported items without putting the cost of the transportation or handling. To use this figure in the calculation of Import Duty you must convert to Nigerian Naira i.e. FOB x Exchange Rate in the currency of export country.
Insurance
This is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.
Freight
This is the cost of Transporting the imported items to the designated port of discharge whether by Sea, Air, or Road. This must also be converted to Naira i.e. Freight in the currency of export country’s exchange rate
In order to get your CIF, simply add the cost of the imported items, the insurance value (usually 0.5% of FOB), and the cost of transportation, which is Freight.
i.e CIF= FOB (cost of item)+0.5% of FOB (insurance)+FREIGHT (cost of transportation)
Taxes and Levies for Calculation of Customs Import Duty
In other to calculate Import Duty, there are taxes and levies you need to know and their fixed rates too.
Comprehensive Import Supervision Scheme(CISS)
This is an administrative charge of 1% of FOB value of all imports based on the exchange rate on the approved e-Form “M”. In other words, it is a one per-cent mandatory deductions from revenue collected on behalf of the government by the Nigeria Customs Service (NCS) meant for the training of the service staff.
Formula: 1% of FOB value
Surcharge
This is an additional tax levied on goods imported into Nigeria. It’s levied on the Import Duty value. This tax is meant for port development.
Formula: 7% x Import Duty (ID)
Surface Duty (ID)
This is often referred to as Import Duty (ID). Import Duty is the tax collected on imported goods by Customs. The value depends on the HS Code – usually 5%, 10%, 20%, 35% etc. of the CIF Value.
Formula: X% of CIF Value
ECOWAS Trade Liberalization Scheme(ETLS)
This is the tax imposed on goods that are imported from ECOWAS non-member countries into ECOWAS member countries. It is also referred to as ECOWAS levy.
Formula: 0.5% of CIF value
Value Added Tax (VAT)
Value Added Tax (VAT) is a form of tax imposed on the supply of all goods and services. The main VAT rate in Nigeria is 7.5% (raised from 5% on 1st Feburary 2020).
Formula: VAT = 7.5% x (CIF + ID + Surcharge + CISS + ETLS)
Read: How to Calculate VAT on Imported Goods in Nigeria
In summary, calculation of Import Duty in Nigeria entails payment of import duty based on applicable Harmonized System Code (H.S. Code), 7% Surcharge, 1% Comprehensive Import Supervision Scheme(CISS), 0.5% ECOWAS Trade Liberalization Scheme(ETLS), and 7.5% VAT which are to be made through one of the banks designated by the Federal Government for the Customs Area of Importation.
How to calculate Customs Import Duty in Nigeria
Let’s do this with an illustration!
Mr Obieze Ugochukwu is an Onitsha based businessman who sells and imports New Truck Tyres from abroad. He has just ordered a 1x40ft container load of New Truck Tyres from a Merchant in China for $8,970. He paid other additional charges at the rate of $800. So his total FOB=$9,770.
In other to determine what Mr Obieze would pay as Custom Duty Charge, you need to know the HS Code for New Truck Tyres. This will help you to know the tax receivable on your goods by Customs (surface duty)
The HS Code for New Truck Tyre according to the Common External Tariff (CET) is 40112000, which has an import duty rate of 10% with 7.5% VAT.
So assuming the cost of Freight is $1500. The CF= $8,970+$1500.
Insurance is billed on both the cost of goods and the cost of freight. So if the Insurance charged on your goods is 0.5%, then Insurance = 0.005 x $10,470= $52.35
So, CIF (Cost+ Insurance+ Freight) = 8,970+ 52.5+ 1500
Hence CIF = $10,522.4
Next will be to convert to Naira using the CBN official rate which as at the time writing this tutorial is N381 per dollar.
So the CIF which is going to be in Naira will now be:
CIF= $10,552.4 X N381= N4,020,464.4
We already know our import duty rate as 10%
Import Duty Rate: 10% of CIF= 0.1 X 4,020,464.4 = N402,046.44
Surcharge: 7% of Import Duty= 0.07 X N402,046.44= N28,143.25
CISS: 1% of FOB=0.01 X N3,722,370.00 = N37,223.70
ETLS: 0.5% of CIF= 0.005 X N4,020,464.4 = N20,102.32
VAT: 7.5% X (CIF + ID + Surcharge + CISS +ETLS)
0.075 X (4,020,464.4 + 402,046.44 + 28,143.25 + 37,223.70 + 20,102.32)
VAT = 0.075 X 4,507,980.11= 338,098.50
To calculate Customs Import Duty, all charges will now be added together including VAT
Customs Duty = (ID + Surcharge + CISS + ETLS + VAT)
Customs Duty = 402,046.44 + 28,143.25 + 37,223.70 + 20,102.32 + 338,098.50 = N825,624.21
Therefore, the Customs Duty and Taxes that Mr. Obieze Ugochukwu would pay to the Federal Government of Nigeria for importing New Truck Tyres is N825,624.21.
