DIPLOMA IN ACCOUNTANCY (II) & DIPLOMA IN PUBLIC SECTOR

ACCOUNTING AND FINANCE (II)

CUSTOMS
IMPORT DUTY AND EXPORT DUTY

Customs are duties and taxes which are levied by a central government on imports
of goods into and export of goods from Tanzania

It is collected from the importer or exporter of goods but its burden is born by
consumers of goods not by the importer or exporter who pays it.

Source of customs laws

Customs are administered through the following laws

(i) East African Community Customs Management Act (EACCM Act 2004)
(ii) The East African Community Customs Management Regulations (2010)
(iii)The East African Community Customs Management, Rules of origin
(iv) Value Added Tax Act (VAT Act 2014)
(v) The excise and management tariff Act, Cap 143
(vi) Protocol on the Establishment of the East African customs Union

CUSTOMS ADMINISTRATION IN TANZANIA

Customs duties are administered by customs and excise department under

TRA.

The department has the following functions.

1. Revenue function: The department is mainly tasked with revenue collection

function

2. Non – revenue function: The customs department is responsible for the

following.

a. To prevent the importation/ exportation of prohibited and restricted goods

b. Promotion of export and discouragement of imports i.e. it promotes
exportation through.
 Export Processing zones (EPS)
 Duty drawbacks
 free guotes
 Manufacturing under bond (MUB)

CPA (T) Avitus Dominick (0714-336097) Principles of Taxation (2021) Page 1

 c. To enhance security in the world. This is done by checking goods, people
moving around the world

TYPES OF DUTIES AND TAXES ADMINISTED BY CUSTOMS AND EXCISE

DEPARTMENT.

1. Import duty

This is the duty imposed on the customs value, usually CIF value of the goods
imported.

The following rates are applicable

 0%- for capital goods e.g. machinery

 10%- Semi finished goods (intermediary goods) e.g. spare parts.
 25% - for finished goods

2. Excise duty on imports

This is imposed on few selected items each at own rate e.g. beer, soft drinks,
cigarettes, saloon and station wagon cars, plastic bags, wine, petroleum products,
e.t.c.

3. VAT on imports

VAT is imposed on all imports except those exempted by the VAT Act. Currently
18%

4. Railway and development levy

This is imposed on all imports for the purpose of promoting railway transport. It
is imposed at 1.5% of the CIF value

5. Fuel levy.

This is levied on importation of petroleum products

6. Customs processing fee

This is the fee imposed for all items imported at 0.6% of FOB price.

CPA (T) Avitus Dominick (0714-336097) Principles of Taxation (2021) Page 2

 COMPUTATION OF CUSTOMS DUTIES

Custom duties are taxed either at ad- valorem e.g taxes charged based on the
value or on specific basis e.g. based on a physical measurement .i.e height,
volume.

Customs duties are calculated by using the following procedures

(a) Calculate import duty,

In order to obtain import duty, take the customs value (usually CIF value) multiply
it by import duty rate.

Hence: Import duty = Customs / CIF value x import duty rate.

Note: CIF means Cost, Insurance and Freight

CIF is obtained as follows.

FOB price/ cost of the goods xx

Freights xx

C&F xx

Insurance xx

CIF XX

(b) Calculate excise duty,

In order to obtain excise duty take the custom value plus import duty calculated
in step one; then multiply by the excise duty rate.
Hence: Excise duty = (custom value/ CIF + import duty) x excise duty rate.

(c) Calculate railway and development levy.

This is calculated at 1.5% of a CIF value.

(d) Calculate VAT on imports.

In order to get VAT on imports take the CIF value add import duty, excise duty
and railway and development levy, then multiply the result with VAT rate. i.e 18%

CPA (T) Avitus Dominick (0714-336097) Principles of Taxation (2021) Page 3

 DUTIES AND TAXES PAYABLE FOR RETURNING RESIDENT AND OTHER
PERSONS CHANGING NATIONALITY.

The person is liable to pay tax with the following exemptions:

i. Wearing apparel
ii. Households effect (should be one and used)
iii. One motor vehicle (The vehicle must be owned for at least 12 months abroad
and should not be sold/ disposed before expiry of 2 yrs)
iv. Wine and spirit. Not more than one litre
v. Perfume, Not more than 1/2 litre in total
vi. Cigarettes, cigars etc. not more than 250 milg/mg

CALCULATION OF CIF VALUE WHEN MORE THAN ONE ITEMS ARE

INCLUDED IN ONE INVOICE BUT ATTRACT DIFFERENT DUTY RATES

If there are more than one item imported by one importer and they are included
in one invoice in which, a lump sum freight charges have been paid as well as
insurance charges if any and the items are subject to different customs duty rate,
the CIF value of each item shall be calculated using the following procedure

Step1: Calculate the total FOB value of all items imported

Step 2: Calculate the total CIF value for all items imported.

Step 3: Calculate CIF to FOB fraction.

Fraction = Total CIF value

Total FOB value

Step 4: Multiply the fraction to the FOB of each item to get CIF value of each item.

Step 5: Calculate duties and taxes payable on each item separately

Note: If insurance cost is not invoiced then take 1.5% of the C & F

CPA (T) Avitus Dominick (0714-336097) Principles of Taxation (2021) Page 4

 VALUATION OF IMPORTED GOODS

Customs valuation is the process applied to determine the customs value of

imported goods

There are six methods of customs valuation as provided by Agreement of

customs valuation (ACV) of the world trade organization (WTO).

These method should be applied in a sequential order.

The six methods are as follows:

Method 1 Transaction value of imported goods

Method 2 Transaction value of identical goods

Method 3 Transaction value of similar goods

Method 4 Deductive value method

Method 5 Computed value method

Method 6 The fallback method

METHOD 1. TRANSACTION VALUE OF IMPORTED GOODS.

It is the price actually paid or payable PLUS (if not included in the price actually
paid for payable) the following.

i. The parking cost incurred by the buyer

ii. Selling commission incurred by the buyer i.e. not buying commission.

NOTE: Selling commission is the fee paid to the seller’s agent.

Buying commission is the fee paid by the importer to the importer’s

agent for the service of representing the importer abroad (usually it is
paid domestically)

iii. Assists. These are goods in form of materials, tool, components or services
such as designs, supplied free or at reduced cost by the importer for the use
in the production for the goods to be imported.
iv. Royalty or license fee that the buyer is required to pay directly or indirectly
as a condition of sale.
v. The proceeds of any subsequent resale or disposal or use of the imported
items that accrue directly or indirectly to the seller.
vi. The cost of transport, insurance and related charges to the place of
importation.
Related charges include:-

CPA (T) Avitus Dominick (0714-336097) Principles of Taxation (2021) Page 5

  Demurrage charges - cost incurred by the importer to the vessel
owner as an extra charge for delaying in loading or unloading the
ship.
 Primary charge - Is the percentage added to the freight charges by
the master of the ship for his care and trouble.

Cost Excluded from transaction value.

(i) Freight after the importation to the customer`s territory of the importing
country e.g. cost from Dar port to Mwanza.
(ii) Cost of construction, erection, assembling, maintenance or technical
assistance occurring after importation.
(iii) Duties and taxes of the importing country
(iv) Other cost excluded
 Wharfage
 Storage cost
 Import declaration fee
 Buying commission

NOTE:
Price actually paid or payable means:-
This is the total payment (both direct and indirect) that the buyer makes to the
seller.
Indirect payment is when the importer is instructed by the exporter to make
payment to the third party on behalf.

Quantity discount/ trade discount) is allowed for deduction from the price paid
or payable when computing custom value.

However cash discount offered by the seller is not allowed unless the discount is
offered prior to the valuation of imported goods.

THE CONDITIONS FOR THE USE OF TRANSACTION VALUE METHOD

a) The buyer and the seller should not be related. The following are regarded as
related parties.
 Members of the same family
 Employer and employee
 Partners in the partnership business
 Parent and a subsidiary
 The head office and its branches.

b) There must be evidence of sale for export

Examples
 Commercial invoice
 Sales contracts

CPA (T) Avitus Dominick (0714-336097) Principles of Taxation (2021) Page 6

  Bank remitants slip etc

c) There must be no restriction on disposal or use by the buyer other than

restrictions which are required by law. Example: Requirement to obtain
license, inspection labelling before resale or use.

d) The sales price is not subject to some condition for which a value cannot be
determined. Example. The seller establish the price on condition that the buyer
will also buy other goods of specified quantity in the future.

METHOD 2. TRANSACTION VALUE OF IDENTICAL GOODS.

This method is used if method one has failed under this method the value of the
items imported is determined by referring to the value of identical items.

What are identical goods?

Are the goods that are:
 The same in all aspects including physical characteristics, quality and
reputation
 Produced in the same country has the goods being valued
 Produced by the same producer as the goods being valued.

Note: Where the goods produced by the same producer are not available, identical
goods produced by the different person in the same country may be taken into
consideration.

Example of identical goods.

A red Nadia car of 2007 imported by Mr. X
A red Nadia car of 2007 imported by Mr. Y

METHOD 3. TRANSACTION VALUE OF SIMILAR GOODS.

This method is used when method one and two have failed. Under this method the
value of an item imported is determined by referring to the value of the similar
items.

What is similar goods?

Are goods that
 Closely resemble with the goods being valued in terms of characteristics and
component material
 Can perform the same function and are commercially interchangeable with
a goods being valued
 Produced in the same country as the goods being valued

CPA (T) Avitus Dominick (0714-336097) Principles of Taxation (2021) Page 7

Note 1: where similar goods produced by the same producer are not available,
similar goods produced by the different producer in the same country can be
considered.

Examples of similar goods

A good year tyre size 14/145
A Dunlop tyre size 14/145

Note 2. If there is more than transactions value of identical or similar goods, the
lowest of such value should be used.

METHOD 4. DEDUCTIVE METHOD.

This is used when method 1, 2 and 3 have failed. Under this method the value is
determined by starting with a selling price of the item in the country of importation
less certain specified expenses incurred after importation.

These expenses which are to be deducted include:-

(a) Transportation, insurance and other associated costs incurred within a

country of importation
(b) General expenses, profits or commission
(c) Custom duties and other taxes payable in the country of importation

NOTE: The selling price per unit to be taken in the greatest of the number of units
sold.

METHOD 5 COMPUTED VALUE METHOD.

This method is used when the previous four methods have failed. Under this
method the custom value is calculated as the sum of

a) The cost of materials and other processing cost incurred in producing

imported goods.
b) Any amount of profits and general expenses for sale of goods in the country
of exportation
c) The cost of transport, insurance and other related charges from the country
of exportation to the country of importation.

Limitations of this method

The use of this method is limited where
 The buyer and the seller are related
 The producer is not prepared to provide data on the cost of his production

CPA (T) Avitus Dominick (0714-336097) Principles of Taxation (2021) Page 8

METHOD 6. FALL BACK METHOD

This method is used where all previous methods have failed.

Under this method the value of imported goods is determined by going back to the
previous five methods and selecting the method which gives at least reasonable
value to both parties.

The value is also determined by using other values which can be agreed by both
parties.

Restrictions for the use of the fallback method

The customs value under this method should not be determined using;
1. The selling price of goods in the country of importation.
2. The selling price of the goods in the country of exportation
3. The selling price of goods for export to a country other than a country of
importation.
4. Using the higher of two alternatives values
5. Arbitrary/fictitious value. This is the value that cannot be explained how
was found

IMPORTATION PROCEDURES

Importation means to bring or cause something to be brought into a partner state

from foreign country.

There are four main important procedure which are required in importation of
goods.

i. Entry
ii. Examination
iii. Valuation
iv. Clearance and release

1. ENTRY.

See 33 of customs management Act, 2004 prohibit unloading of goods from a

vessel or any other means of transport unless the goods have been entered.

Entry involves furnishing by the owner or agent of the goods, the full particulars
of the imported goods, attaching documents like.

 Invoices
 Bank remittance ship etc.

CPA (T) Avitus Dominick (0714-336097) Principles of Taxation (2021) Page 9

The entry together with documents are submitted to custom officer to examine
whether

a) The value declared is reasonable

b) Goods imported are not prohibited or restricted
c) Documents are genuine

THERE ARE FIVE TYPES OF ENTRY.

i. Entry for home consumption. This is used when the imported goods are
to be cleared on payment of full duties.
ii. Entry for warehousing. This is used when imported goods are not required
immediately in arrival i.e. the importer stores the goods while arranging for
payment of duties in a bonded warehouse licensed by TRA.
iii. Entry for transit. This is used for transit goods i.e. goods that are
transported through countries from one customs office to another without
paying duties
iv. Entry transshipment, this is used for goods that are unloaded or will be
unloaded from importing vessel to an exporting vessel.
v. Entry for export processing zone (EPZ). EPZ is an area where small
manufacturers are allowed to import plants, machinery, equipment and
material for the manufacture of the goods to be exported without payment
of duties.

The following goods may be imported without entry

a) Personal baggages of the passengers or member of the crew

b) Diplomatic bags
c) Human remains
d) Coin, currency and notes not exceeding a specified amount by law
e) Mail bags and postal articles

2. EXAMINATION.

After processing of documents has been done they will be dispatched to the port
for examination of goods by the examination officer.

The officer will check

a) The goods and agree with entry description, type, quantity value,
classification etc.
b) The goods are not prohibited or restricted
c) If they are restricted the officers check if the conditions relating to
restrictions have been complied with

CPA (T) Avitus Dominick (0714-336097) Principles of Taxation (2021) Page 10

3. VALUATION.

Since custom duties are payable as the percentage of value, the valuation officer
uses the report issued by the examination officer to value the imported goods for
customs duties and taxes purposes.

4. CLEARANCE AND RELEASE OF GOODS.

This involves getting a gate pass to allow goods to be removed from the port after
the goods have been examined valued and duties and taxes as well as other port
charges have been paid.

EXPORTATION PROCEDURES.

Exportation means movement of goods from one country to another.

In accordance with EACEMA (2004) Export means to take or cause something

to be taken out of a partner state

Categories of exports
There are three categories
i. Outright exportation. This is when the goods are exported out of the
country with intention to remain there permanently or to be consumed in
those foreign countries.
ii. Temporary exportation. This is when goods are exported out of the country
for special purpose and then they will be brought back, example when
goods are exported for renovation.

iii. Re- exportation. This is the custom procedure whereby goods that were
imported for temporary use are to be exported after the end of the intended
activity. Example includes goods for exhibition or goods for entertainment

There are four procedures for exportation

(a) Entry
(b) Examination
(c) Valuation
(d) Loading for exportation

PASSENGERS CLEARANCE

CPA (T) Avitus Dominick (0714-336097) Principles of Taxation (2021) Page 11

Under 5.44 of EACCMA (2004) all passengers arriving must go to the baggage
room or other place as instructed for the examination of baggages. They will
remain there until they receive a permission to leave.

Passengers in the baggage room are required to read on the noticeboard and then
decide to pass either through a green or red channel.

Green channel means that part of exit from any custom area where passengers
arrive with goods in quantity and value not exceeding that allowable.

Red channel means part of exit from any customs arrival area where passengers
arrive with goods which quantity or/ and value exceed that allowable.

PROHIBITIONS AND RESTRICTIONS

 The partner state governments have the duty and responsibility to protect
the society and the economy
 The customs as the government has the duty on behalf of the government
to protect the society and the economy by enforcing laws pertaining to
prohibitions and restrictions.

Prohibited goods. These are goods which importation, exportation or carriage

coastwise are not allowed at all.
Carriage coastwise means the movement of the goods within partner state.

Examples of prohibited imports

i. Narcotic goods
ii. Used tyres
iii. Soaps and cosmetic products containing mercury
iv. Pornographic materials

Restricted goods. These are goods which importation, exportation or carriage

coastwise are allowed but subject to fulfillment of conditions regulating their
importations, exportation and carriage coastwise.

Example of Restricted imports.

(a) Arms
(b) Ammunition
(c) Tortoes shell
(d) Ivory
(e) Ivory powder
(f) Traps capable of killing animals
(g) Genetically modified products

Example Restricted exports.

(a) Timber

CPA (T) Avitus Dominick (0714-336097) Principles of Taxation (2021) Page 12

 (b) Woods charcoal
(c) Unprocessed fish/flesh unprocessed fish

Reasons for imposing prohibitions or restrictions

a. Security reasons e.g. Importation arms or ammunition

b. Health reasons- Importation of drugs or second hand goods
c. Social reasons/cultural reason- Importation of pornographic materials
d. Economic reason - to protect local industries
e. Environmental reasons - importation of DDT
f. Political reasons - Restriction on importation of seditions publication.

CUSTOMS OFFENCES

An offence means breaking the law or failure to comply with a certain law for
which a penalty is provided.

The following are some of the offences as provided by EACCMA

(i) It is an offence to fail to provide food and accommodation to an officer who

is searching a vessel or an aircraft for long period. A fine not exceeding 1000
USD is payable
(ii) It is an offence to impersonalize customs officer:
Fine: On conviction, a sentence which exceed 3 yrs should be imposed
decide other punishments.
(iii)Engagement in corrupt practice.
Fine: upon conviction, parties involved are subjected to a sentence not
exceeding 3yrs.
(iv) Inducing another person to commit an offence. Imprisonment for a term not
exceeding 1 year
(v) To assume the character of an officer. A person shall be liable on conviction
to imprisonment for a term not exceeding 3 yrs.
(vi) Making use of false documents. Imprisonment for a term not exceeding 3 yrs.
(vii) Failure or refusal to produce accounting records.
(viii) Unloading goods in unapproved place. Goods will be liable to forfeiture by
TRA
(ix) Removing goods from customs without payment of duty. Goods are liable to
forfeiture.

CPA (T) Avitus Dominick (0714-336097) Principles of Taxation (2021) Page 13