REPORT TITLE

2018

CUSTOMS

CUSTOMS
VALUATION
FEBRUARY 7
A DEEP DIVE INTO THE SIX
METHODS
COMPANY NAMEOUTLINED IN THE
Authored by: Your
CUSTOMS ACT Name
OF 1969 IN
BANGLADESH

SABBIR AHMED
KHAN AKBER & CO
CHARTERED ACCOUNTANTS

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PREFACE
In navigating the complexities of
Bangladesh's customs valuation, the
Customs Act of 1969 outlines six distinct
methods, each with its unique calculation
process. The transaction value method, rooted
in actual prices with adjustments, stands as
the primary approach, while the transaction
value of identical or similar goods provides
alternatives when needed. The deductive
method determines value based on unit
prices and deductions, while the computed
method involves production costs and
profits.
In instances where these methods are
impractical, the fall-back method allows
flexibility, drawing on previously
determined values. A comprehensive
understanding of these methods is
paramount for importers, ensuring
compliance with customs regulations and
fostering transparent and equitable
international trade practices.
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Customs valuation refers to the process of
determining the economic value of goods for
the purpose of calculating customs duties and
taxes when they cross international borders.
It is a critical aspect of international trade
regulations, and various countries follow
established methods to assess the value of
imported goods consistently. Customs
valuation involves six distinct methods to
determine the value of imported goods.
1. Transaction Value of Identical Goods:
This method considers the transaction value
of goods that are identical to the imported
ones, produced in the same country, and by
the same producer.
2. Transaction Value of Similar Goods:
Similar to the previous method, this approach
looks at the transaction value of goods that
closely resemble the imported ones in terms
of materials, characteristics, and
functionality.
3. Deductive Method: When transaction
value or similar/identical goods cannot be
used, the deductive method determines value
based on the unit price of the goods sold to an
unrelated buyer in the greatest aggregate
quantity.
4. Computed Method: This method
calculates the customs value using the cost of
production, profit, general expenses, and
other associated expenses.
5. Fall-Back Method: When none of the
above methods are applicable, the fall-back
method allows for flexibility, determining
value based on reasonable means consistent
with Customs Valuation Agreement
principles.
Each method has specific conditions and
considerations, ensuring a comprehensive
and adaptable approach to customs valuation
in accordance with international guidelines.
1. TRANSACTION VALUE METHODS

Customs valuation is generally based on the actual

price of the goods, which is usually shown on the
invoice. This price, plus adjustments for certain
elements, equals the transaction value. This
constitutes the first and most important method of
valuation referred to in the Customs Valuation
Agreement.

The Customs value equals the transaction value if

the following conditions are met:

Evidence of sale: There must be evidence of a sale

for export to the country of importation, like
commercial invoices, contracts, or purchase
orders.

No restrictions: There cannot be any restriction

on the disposition or use of the goods by the buyer
other than restrictions that are:

✓ Required by law in the country of

importation
✓ Limited to the geographic area in which the
goods may be resold
✓ Do not substantially affect the value of the
goods

To utilize transaction value as the valuation method, the price cannot be subject to
conditions for which the value for imported goods cannot be determined. These
conditions include:

➢ The seller establishes the price of the goods on the condition that the importer
will also buy a certain quantity of other goods.
➢ The price of the goods depends on the price that the importer sells other goods
to the seller.
➢ The price is established on a form of payment irrelevant to imported goods.

If sufficient information is available, there can be specific adjustments made to the

transaction value. This information includes:

➢ Commissions and brokerage, excluding buying commissions

➢ Packing and container costs and charges
➢ Assists
➢ Royalties and license fees
➢ Subsequent proceeds
➢ Cost of transport and insurance
➢ NOT: costs incurred after importation, like duties, transport, construction, or
assembly

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If the buyer and seller are related parties, the use of the transaction value is acceptable if
the importer demonstrates that:

The relationship did not influence the price

The transaction value closely approximates a test value

Customs frequently questions declared values, relying on importer documentation for

transaction value-based valuation. Customs can request further explanations, and if doubt
persists or there is no response, may opt for an alternative valuation method, informing the
importer in writing. This ensures transparency and adherence to valuation procedures.

Illustration: QLT Ltd. is importing a shipment of textiles, and the transaction value method is being
considered for Customs valuation. The invoice price for the textiles is $15,000. The company has
additional costs, including $700 for packing and container charges, $400 for commissions and
brokerage (excluding buying commissions), and $250 for royalties and license fees. However, the
buyer and seller are related parties. Determine the adjusted Customs value using the transaction
value method, considering the specified adjustments and the related party relationship

Solution: Given Information:

✓ Invoice price for the textiles: $15,000

✓ Packing and container charges: $700
✓ Commissions and brokerage (excluding buying commissions): $400
✓ Royalties and license fees: $250
✓ Related party relationship between buyer and seller

Adjusted Customs Value using Transaction Value Method for Related Parties:

Adjusted Customs Value = (Invoice Price + Adjustments)

= $15,000 + ($700 + $400 + $250)

= $15,000 + $1,350

= $16,350

Considering the related party relationship, the transaction value method can be used if the importer
demonstrates that the relationship did not influence the price, and the transaction value closely
approximates a test value. In this case, the adjusted Customs value using the transaction value
method is $16,350, taking into account the invoice price and specified adjustments for related party
transactions.

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2. TRANSACTION VALUE OF IDENTICAL GOODS

The transaction value is calculated in the same manner on identical goods if the goods are:

✓ The same in all respects including physical characteristics, quality, and reputation
✓ Produced in the same country as the goods being valued
✓ Produced by the producer of the goods being valued

To use this method, identical goods must be imported into the same country as the goods being
valued. The goods must also be exported around the same time (90 days prior to the import
being assessed) as the goods being valued. Equal or close approximates in Commercial quantity

Some exceptions are accepted:

✓ If there are no identical goods produced by the same person in the country producing
the goods being valued, identical goods produced by someone else in the same country
can be taken into account.
✓ Minor differences in the appearance of goods being valued do not prohibit valuation
using otherwise identical goods.
✓ If any differences are found in the value, due to quantity, distance & transport, necessary
adjustments have to be made to determine the Customs Value.
✓ If multiple values are found, the lowest among the values has to be chosen.

These exceptions exclude imported goods that incorporate engineering or artwork provided by
the importer to the producer of goods at little or no charge

Illustration: Atex Ltd. is importing a specific model of smartphones, and the transaction value of
identical goods method is being considered for Customs valuation. The invoice price for the
imported smartphones is $12,000. The company has identified identical smartphones produced by
the same producer in the same country, but there are some minor differences in appearance, such
as color variations. The transaction value of these identical goods is $11,500. Additionally, the
company incurred $800 for packing and container charges. Determine the adjusted Customs value
using the transaction value of identical goods method, considering the specified conditions and
exceptions.

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 Solution: Given Information:

✓ Invoice price for the imported smartphones: $12,000

✓ Transaction value of identical smartphones: $11,500
✓ Packing and container charges: $800

Adjusted Customs Value using Transaction Value of Identical Goods Method:

Adjusted Customs Value = (Transaction Value of Identical Goods + Adjustments)

= $11,500 + $800

= $12,300

Therefore, the adjusted Customs value using the transaction value of identical goods method is
$12,300. The method allows for minor differences in appearance, and the adjustments cover the
additional costs incurred for packing and container charges. This approach aligns with the
specified conditions and exceptions for using the transaction value of identical goods method for
Customs valuation.

3. TRANSACTION VALUE OF SIMILAR GOODS

Transaction value can be calculated using similar goods if:

❖ Goods closely resemble the goods being valued in terms of materials and
characteristics
❖ Goods perform the same functions and are interchangeable with the goods being
valued
❖ Goods are produced by the same producer of the goods being valued, and the goods
are sold to the same country of importation as the goods being valued. The goods must
also be exported around the same time as the goods being valued.

Illustration: G4k Ltd. is importing a specific type of high-performance computer servers, and the
transaction value of similar goods method is being considered for Customs valuation. The invoice
price for the imported servers is $40,000. The company has identified similar servers produced by
the same producer in the same country, with comparable materials and characteristics. The
transaction value of these similar goods is $38,000. Additionally, the company incurred $1,200 for
packing and container charges. Determine the adjusted Customs value using the transaction value
of similar goods method, considering the specified conditions.
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Solution: Given Information:

✓ Invoice price for the imported computer servers: $40,000

✓ Transaction value of similar servers: $38,000
✓ Packing and container charges: $1,200

Adjusted Customs Value using Transaction Value of Similar Goods Method:

Adjusted Customs Value = (Transaction Value of Similar Goods + Adjustments)

= $38,000 + $1,200

= $39,200

Therefore, the adjusted Customs value using the transaction value of similar goods method is $39,200. This
method allows for the use of similar goods with comparable materials and characteristics. The adjustments
cover the additional costs incurred for packing and container charges. The result aligns with the specified
conditions for applying the transaction value of similar goods method for Customs valuation.

4. DEDUCTIVE VALUE METHOD

The Customs valuation method based on the greatest aggregate quantity is a deductive approach
determining the unit price with the highest unit sales to unrelated buyers within the importing
country. This method offers a fair and standardized valuation when transaction value, identical,
or similar goods are not applicable, requiring an unrelated buyer-seller relationship and a sale
around the time of importation or within 90 days thereafter.

Determining Customs Value: When transaction value, identical, or similar goods are
insufficient to determine Customs value, it is established based on the unit price in the
greatest aggregate quantity within the importing country.
Greatest Aggregate Quantity: This refers to the price at which the greatest number of
units are sold to unrelated buyers at the first commercial level after importation.
Comparative Analysis: A comparison involves assessing sales at different prices, focusing
on the sum of units sold at each price for both identical or similar goods. The price with
the highest unit sales represents the greatest aggregate quantity.
Basis for Customs Value: The unit price with the greatest aggregate quantity serves as the
basis for determining the Customs value of the imported goods.
Relationship Criteria: The buyer and seller in the importing country must be unrelated
for this method to be applicable, ensuring a fair and unbiased valuation process.
Timing of Sale: The sale must take place around the time of importation, and if no sale
occurs at that time, sales within 90 days after importation are considered acceptable.
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There may be deductions from the price at the greatest aggregate quantity.

✓ Commissions, the sum of profits, and general expenses added in connection with sales must
be deducted.
✓ Transport costs and insurance must be deducted from the price of goods when these costs
are incurred within the country of importation.
✓ Customs duties and other taxes payable in the country of importation because of the
importation or sale of the goods must be deducted.
✓ Value added by assembly or further processing must be deducted when applicable.

Illustration: TLS Ltd. is importing a batch of machinery, and the deductive value method is being
considered for Customs valuation. The Customs authorities have identified sales of similar machinery
in the greatest aggregate quantity in the same country of importation. The unit price for these sales
is $25,000 per unit, and the total quantity sold at this price is 10 units. The imported machinery is
identical to those sold in the greatest aggregate quantity. The company incurs additional costs,
including $3,000 in commissions, $1,200 in transport costs and insurance within the country of
importation, and $500 in customs duties and taxes. Determine the adjusted Customs value using the
deductive value method, considering the specified conditions and deductions.

Solution: Given Information:

✓ Unit price for sales in greatest aggregate quantity: $25,000 per unit
✓ Total quantity sold at this price: 10 units
✓ Commissions: $3,000
✓ Transport costs and insurance within the country of importation: $1,200
✓ Customs duties and taxes: $500

Adjusted Customs Value using Deductive Value Method:

Adjusted Customs Value = (Unit Price × Total Quantity − Deductions)

= ($25,000 \times 10) - ($3,000 + $1,200 + $500)

= $250,000 - $4,700

= $245,300

Therefore, the adjusted Customs value using the deductive value method is $245,300. This method
considers the unit price and total quantity sold in the greatest aggregate quantity, with deductions
for commissions, transport costs and insurance, and customs duties and taxes. The result aligns with
the specified conditions for applying the deductive value method for Customs valuation.

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5. COMPUTED VALUE METHOD

Computed value, the most challenging and rarely used

method, determines the Customs value using the cost
of production of the goods being valued, plus the profit
and general expenses reflected in sales of similarly
classified goods.

The computed value is the sum of the following elements:

(A) Production cost: The value of materials, fabrication, and other processing involved in
producing the imported goods.

➢ Materials: raw materials, costs to get the raw materials to the place of production,
subassemblies, and prefabricated components that will eventually be assembled.
➢ Fabrication: the cost of labor, assembly costs when there is an assembly operation
instead of the manufacturing process, and indirect costs like factory supervision, plant
maintenance, or overtime.
➢ Packing costs, assists, engineering work, or artwork undertaken in the country of
importation would be added.

(B) Profit and general expenses: usually reflected in export sales of similarly classified goods
provided by producers in the country of importation.

The amount of profit and general expenses have to be taken as a whole.

General expenses could include rent, electricity, water, or legal fees.

(C) Other expenses are considered, such as the cost of insurance, transport, loading,
unloading, and handling charges associated with transporting the imported goods to the place
of importation.

Illustration: A company is importing a specific type of electronic components, and the computed value
method is being considered for Customs valuation. The cost of production for the electronic
components is $35,000, and the profit and general expenses reflected in export sales of similarly
classified goods in the country of importation amount to $10,000. Additionally, the company incurs
other expenses, including $1,800 for insurance, $2,500 for transport, and $1,000 for loading,
unloading, and handling charges associated with transporting the imported electronic components.
Determine the Customs value using the computed value method, considering the specified elements
and expenses.

Solution: Given Information: Customs Value using Computed Value

Method:
• Cost of production for the electronic
components: $35,000 Customs Value=Cost of Production+Profit and
• Profit and general expenses reflected in General Expenses+Other Expenses
export sales: $10,000
• Other expenses: = $35,000 + $10,000 + ($1,800 + $2,500 +
o Insurance: $1,800 $1,000)
o Transport: $2,500
o Loading, unloading, and handling = $35,000 + $10,000 + $5,300
charges: $1,000
= $50,300

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6. FALL-BACK METHOD

When the Customs value cannot be determined

using any of the previous methods, it can be
determined using reasonable means consistent with
the principles and general provisions of the Customs
Valuation Agreement and based on data available in
the country of importation. This method must be
based on previously determined values but has a
reasonable degree of flexibility.

Under the fall-back method, the Customs value must NOT be based on:

The selling price of goods manufactured in the importing country.

The price of goods on the domestic market of the country of exportation. This would go
against the principle that valuation procedures should not be used to combat dumping.
The cost of production other than computed values which have been determined for
identical or similar goods. The valuation must be determined based on data available in
the country of importation.
The price of goods for export to a third country. Two export markets must be treated as
separate, and the price to one should not control the Customs value in the other.
Minimum Customs value.
Arbitrary or fictitious values.

Illustration: A company is importing a unique type of machinery, and the fall-back method is being
considered for Customs valuation since the Customs value cannot be determined using any of the
previous methods. The company has identified previously determined values for similar machinery,
including a transaction value of $60,000, a deductive value of $55,000, and a computed value of
$58,000. Determine the Customs value using the fall-back method, considering the specified
conditions.

Solution: Given Information:

✓ Transaction value for similar machinery: $60,000

✓ Deductive value for similar machinery: $55,000
✓ Computed value for similar machinery: $58,000

Customs Value using Fall-Back Method: Since the fall-back method allows for flexibility and is
based on previously determined values, we can consider a reasonable value within the range of the
available data. In this case, let's use the average of the previously determined values:

Customs Value= (Transaction Value + Deductive Value + Computed Value)

= {$60,000 + $55,000 + $58,000}{3}

= {$173,000}{3}

= $57,667

Therefore, the Customs value using the fall-back method, based on the average of previously
determined values, is approximately $57,667. This approach considers reasonable means consistent
with the principles of the Customs Valuation Agreement and the available data in the country of
importation.

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C O N C L U S I O N S

In the context of Bangladesh, adherence to the six

methods of Customs valuation is crucial for fostering
fair trade practices and ensuring compliance with
international standards. The transaction value method,
being the primary approach, emphasizes transparency
and accuracy in declaring the actual price of imported
goods. Given Bangladesh's robust import-export
activities, the transaction value of identical or similar
goods, deductive value, computed value, and the fall-
back method provide essential alternatives when
specific conditions are met. Emphasizing the buyer-
seller relationship and evidence of sale becomes
imperative in the Bangladesh perspective, as it ensures
a standardized and objective valuation process.
Overall, aligning with these Customs valuation
methods facilitates a smooth and compliant trade
environment, contributing to Bangladesh's
participation in global commerce.

THANK
YOU

KHAN AKBER
&
CO
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