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How to calculate customs and excise duty

Customs and excise duties are computed in different ways. Customs duties are generally based on the transaction value of the goods, but excise duties are often based on the quantity of goods.

Customs duty

In many countries, the valuation of goods for the purpose of customs law is based on the World Trade Organisation (WTO) rules which use the transaction value as the main valuation method. This is generally the amount shown on the invoice for the transaction, but may be modified to ensure that all relevant costs are included. For example, in the UK, the customs valuation is based on the total value of the goods including the purchase price plus costs of collection and delivery to move the goods to the port of export, shipping costs to the UK port of arrival, packaging and insurance. In cases where the seller has absorbed these costs, they are not included in customs valuation. The contract terms must be examined to see the allocation of freight costs between seller and buyer.
Categorisation process
Countries and trading blocs impose uniform rates of customs duty which vary according to the nature of the goods, and how they are categorised. To categorise products for customs duties, most countries use the Harmonised Commodity Description and Coding System, known as the HS Nomenclature, to categorise goods. The European Union (EU) uses a Combined Nomenclature which incorporates the HS Nomenclature and adds some additional commodity codes. Rates of customs duty are set for the different categories of products under this classification. Calculation To calculate the customs duty due on a product entering the EU, the correct classification of the item must be identified and the appropriate customs duty rate found. This rate is then applied to the value of the goods computed under the transaction value method. Uniform customs duty rates apply in EU member states for goods entering EU territory.

Excise duty

Excise duty applies to products such as wine, tobacco, petrol and mineral oils, and is normally charged in relation to quantity rather than value. Calculation of excise duty can therefore be performed by applying the rate of duty to the quantity of the product. In the case of alcoholic drinks, the amount of duty in the UK depends on the strength of the alcohol, and in the case of cigarettes, part of the excise duty is computed on the basis of the retail price of the product. In the EU, the member states follow directives on computing excise duty, but the member states set their own rates. So for example, the excise duty rates on importing goods into the UK may be different from those applying in other EU countries.

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