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GATT: The new system of valuation

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To be enforced in Pakistan from Jan 1, 2000

By AMANULLAH BASHAR
Sep 06, 1999

Under the World Trade Organization (WTO), the General Agreement on Tariff and Trade (GATT) system for customs valuation is being enforced in Pakistan from January 1, 2000.

Since the ultimate target of introducing GATT valuation system at customs stage is aimed at minimizing duty on imports to a level of zero-rated regime, the customs revenues are likely to fall in the initial stage. Although it may not be possible to assess the exact fall in revenue at this stage, however, experts feel that a 10 per cent fall in revenue collection through customs is estimated.

India has already introduced the GATT system of valuation in 1998 and has to bear a considerable loss of revenue. In the long run, the customs revenue will be replaced by GST and the revenue collecting authorities in Pakistan are also making headway in that direction.

The new system is claimed to be stable, uniform, reasonable and impartial which is derived in the ordinary course of trade and under full competitive conditions, keeping in view the comparable quantities, qualities, place, time etc.

This system of valuation has to be based on equitable and simple principles, which should ensure quick clearance of imported consignments. Dutiable value should be based on equitable and simple principles. The concept of dutiable value shall be readily comprehensible to the importer as well as the customs. The system of valuation should not prevent the quick clearance of goods, it should enable traders to estimate in advance with a reasonable degree of certainty the value of customs purposes. When the customs considers that the declared value may be incorrect, the essential facts for the determination and enforcement of dutiable value should be speedily and accurately verified and the system should reduce formalities to a minimum level.

New system should provide the protection to the honest importers and in case of any valuation dispute, the dutiable value should be speedily and correctly verified. The procedure should be simple and the documentation should be minimum.

HISTORY

The findings of the conference, held at Geneva in 1947, were embodied in the General Agreement on Tariffs and Trade (GATT) signed at Geneva on behalf of 23 nations on October 30, 1947.

Pakistan acceded as a Contracting Party to the GATT in 1951. The main objectives and principles of the GATT are: The most favoured nation treatment, the non-discrimination and the reduction of trade barriers especially the customs duties.

The valuation provision in Article VII of the GATT, calls for standardization, as far as practicable of definitions for value and of procedures for determining value and lays downs certain principles in this connection.

EUROPE

After the adoption of Article VII of the GATT, the next step in the development of international cooperation in valuation procedure was taken by the European Customs Union Study Group. The group was set up in 1947 in Brussels.

Brussels Valuation Convention

The definition of value, produced by the study group in 1949 adapted for use by any country and was incorporated in the convention on the valuation of goods for customs purposes which was signed in Brussels on Dec.15, 1950. At present this code of valuation is applied by 17 European countries and by six other than European countries namely Haiti, Kenya, Korea, Pakistan, Rwanda and Tunisia as member countries.

IMPORTANCE

The increased importance of customs valuation is a feature of the development of modern customs tariff system. In the past, the usual purpose of imposing import duties was to raise revenue. For ease of incidence i.e. revised at a fixed rate per unit of quantity, or if exceptionally "ad valorem" they were applied to merchandise market value which was easy to ascertain. In more recent time the purpose of imposing import duties has begun to turn towards protection and encouragement of home industry and as the "ad valorem" system has been found to be more suitable for this purpose (for various reasons e.g fluctuating prices, the need to take into account gradations of quality, etc.,) its use has become widespread. This development has greatly extended the field of customs valuation and has included in it many classes of merchandise entailing special valuation problems such as novel, specialized and proprietary goods and merchandise for which small price margins are in important element in competition. More adequate and precise valuation procedures have thus become necessary.

VALUATION

Customs valuation is distinguished from commercial valuation. The customs is concerned not only with the transaction between the buyer and the seller but with all similar transactions between other buyers and sellers. The customs must ensure impartial application of "ad valorem duties so as to avoid any discrimination between one importer and another. A new factor in valuation is thus the need for a standard. This standard, which constitutes the customs definition of value, must be applicable to all transactions, whoever the parties to them may be and whatever their conditions.

PROVISIONS OF CUSTOMS VALUES :

* Should be real and that they should be neither arbitrary or fictitious nor based upon the value of merchandise of national origin.

* The basis for determining such values should be stable, given publicity.

* The administration of customs valuation shall be Uniform, Impartial, Reasonable and Subject to arbitration.

The Brussels Convention provides for necessary currency conversions to be made at the official rates of exchange of importing countries.

* The value of any imported goods shall be taken, to be at the normal price. The normal price of any imported goods shall be determined on the following assumptions:

- that the goods brought by sea or land are treated as having been delivered to the buyer at the port or place of importation, as the case may be, and that goods brought by air are treated as having been delivered to the buyer at the airport or place where they are unloaded in Pakistan or if the aircraft first lands in Pakistan at some other airport or place without unloading the goods at such other airport or place.

- that the seller will bear freight, insurance, commission and all other costs, charges and expenses incidental to the sale and the delivery of the goods at that port, airport or place which will be included in the normal price.

- that the buyer will bear any duties or taxes applicable in Pakistan which will not be included in the normal price.

The normal price shall be determined on the assumption that it includes the value of the right to use the patent , design or trade mark in respect of the goods.

EXPORT

The value of any exported goods shall be taken to be the normal price, that is to say, the price which they would fetch, at the prescribed time, on sale in open market for exportation to the country to which goods are consigned between a seller and a buyer independent of each other.

The normal price of any exported goods shall be determined on the following assumptions:

* that the goods are treated as having been delivered to the buyer on board the conveyance in which they are to be exported:

* that the seller will bear all packing, commission, transport, loading and all other costs, charges and expenses including any export duty which may be chargeable incidental to the sale and to the delivery of the goods on board the conveyance in which they are to be exported and which will be included in the normal price.

The normal price shall be determined on the assumption that it includes the value of the right to use the patent, design or trade mark in respect of the goods.

DISCOUNTS

Discounts and price reductions, freely available to any buyer in the open market, including those relating to quantity and level, do not ordinarily call for adjustment of contract prices. In the case of discounts and price reductions of only limited availability, however, it is usually necessary to adjust the reduced contract prices.

Reduction or concession in price (discounts, rebates) there are admissible if they are:

- customary in trade and freely available to any buyer of the same commercial level and fixed at the time of assessment of the duties (not retrospective).

Admissible reductions of concessions in price.

* Quantity rebates are reductions in price granted for the buying of a certain quantity of goods. There may also be a standard price for minimum quantities with progressive rebates for quantities falling within stated brackets (no rebate up to 300 tonnes, 4 per cent rebate from 300 tonnes to 800 tonnes, 7 per cent over 800 tonnes). Such rebates are admissible in determining the dutiable value, even the goods are imported in successive consignments, but only if reasonable time reflecting the normal commercial practice in the quantity to which the discounts are related, in fact to be delivered to the country of import. In such cases the quantity rebate for the total quantity of the goods shall be accepted by the customs at the time of clearance of the last partial consignment, provided that the rebate was fixed by the seller already at the time of the customs clearance for home use or for temporary admission in respect of the first partial consignments.