Causes and reasons customs import duties increase in Nigeria.
Customs import duties are one of the charges that the Nigerian government place on each goods that importers ship to Nigeria. This charge determines the landing cost of each imported goods to Nigeria ports whether airports (Lagos, Abuja or PortHarcourt) or seaports (Tincan Island, Apapa Wharf and Onne ports).
Recently, many importers have been complaining about the hike in the cost of customs clearance. Many have to adopt a local market purchase plan which may not be able to meet up with the supply and demand of the market structures in each sector of economy.
In this article, I will give an insight on what cause the rise in customs import duties. It will help the Nigerian importers to understand the causes and how to manage their import inflow.
The causes of increase in customs import duties in Nigeria are
- VAT increment
- Customs Exchange rate
- Single Window documentation
- HS code % changes
I will take my time to explain in details on the impact of each cause and its economic impacts.
VAT (Value Added Tax) increment on almost all the imported goods in Nigeria
Nigeria government increased the Value added tax on all the imported goods, services and locally made goods. The value increased from 5% to 7.5%. This means that the 2.5% VAT increment will be on all the goods and services. The increase will affect not just only the customs import duties but also on the payments that importer will make in getting the goods cleared at ports. The VAT will be on the following:
- Terminal charges
- Other government levies depending on the goods
- Local shipping invoice
- Transportation of the goods from port to terminal
Customs Exchange rate on Cost, Insurance and Freight (CIF) of import goods to Nigeria
I believe all the importers know that CIF (Cost, Insurance and Freight) is the base amount customs use in calculating the import duties with VAT. The total cost of purchase, insurance and shipping will determine the total amount that may be payable to Nigerian government while importing from other countries to Nigeria. In calculating the total duties payable, CIF value on the imported goods will be used in getting all the other excise and duties on customs duties.
The exchange rate customs uses in calculation of CIF is different from parallel exchange rate. Customs exchange in 2016 was 280 NGN to dollars. Later it changes to 306 NGN to dollar. In 2019, it was pegged at 321 NGN to dollar and presently in 2020 it is 361 NGN to dollar. This increase in exchange in dollar and other currencies like Pounds and Euro will affect the import duties.
The following parameters that Nigeria customs will base on the CIF value:
- Import duty: The import duties will base on the percentage of the imported goods HS code. Example: let us assume the Hs code percent of imported goods is 20% and the CIF is 20,000 USD at present exchange rate of 361 NGN. Let us calculate it.
CIF = 20,000 USD @ 361 = 7,220,000 NGN
Import duty will be 20% of 7,220,000 NGN = 1,444,000 NGN
Compare to when rate was at 306 NGN per USD
Let us calculate it.
CIF = 20,000 USD @ 306 = 6,120,000 NGN
Import duty will be 20% of 6,120,000 NGN = 1,224,000 NGN
The difference is 220,000 NGN which is a lot of fund on importers’ purse
- Port Surcharge: The charges that go to Nigeria Ports Authority (NPA) accounts. This is 7% of the value of import duties like the value above.
- CISS (Comprehensive Inspections Supervision Scheme): I believe it is a charge that goes to all agencies (like customs services) that may in involve in inspection and examination of the goods at ports. It usually 1% of the CIF value on the imported goods
- ELTS (ECOWAS Liberation Trade Scheme): These charges are levies by ECOWAS systems on every goods that are imported to West African Countries. It is 0.5% of CIF.
You can now agree with me that an increase in Customs exchange rate will affect the value of payable duties by the importers. I believe if the Ministry of Finance could lower the rate. It will motivate the importers to ship and buy more.
Single Window documentation system for imported goods
When the government has centralized the import documentation process, many importers that are used to documentation shortcuts cannot escape again. With the launching of trade.gov.ng , all documentation are monitored by Central Bank of Nigeria and customs services with agencies countercheck the importers claims when the goods arrive at ports.
The first documentation (Form M documents) requires FIRS TIN activation, SON certificates and Bank BVN and other agencies like NAFDAC, NDLEA, Quarantine. The processes are monitored by all agencies from PAAR documents (Pre-Arrival Assessment Report), Inspection fee with RRR (Remita Retrieval Reference NUmber generation).
With the monitored processes, the importer will need to pay all duties and levies on their imported goods to Nigeria. The monitored processes make importers pay the right duties or more if proper documentation is not done.
HS code percentage % changes
Harmonized Systems code is used to identify the class; categories all the goods imported to Nigeria belong to. The class will determine the percentage that will be attached to it. In Nigeria, the Ministry of Finance, Central Bank of Nigeria, and Customs Service determine the percentage that each HS code will have base on the its importance and relevance to economic growth.
When imported goods has an increase in local manufacture, the customs service will increase the percentage and may put extra levy fee to discourage importers from shipping them to Nigeria and patronize local market. Central Bank may announce the list items that may not be valid for Foreign exchange opportunity from commercial Banks
Example is new cars that have 35% Import duties and 35% Levy with rice of 10% Import duties and 50% levy. When there is a change that may be an increment in percentage in HS code, the customs payable duties will increase which will affect the land cost of any goods in Nigeria markets.
As a freight forwarding company and customs agency in Nigeria, we understand every cause of duties and levies increment. We also take time to educate importers on what they should expect when we handle their customs clearance processes. We are always available to give you free advice when it comes to shipping, documentation and customs clearing anywhere in the world.