Eacc Management Act 2004

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MR.SWALLO C.G.C LECTURER IN PUBLIC FINANCE AND TAXATION (T.I.A) A.D.A (T.I.A), CPA (MODULE-E)(NBAA), PGDTM(I.F.M), MBA(FINANCE)(O.U.T), MSC.ACC & FIN.(M.U)

P.17 PUBLIC FINANCE AND TAXATION EAST AFRICAN COMMUNITY CUSTOMS MANAGEMENT ACT (EACCMA) 2004 INTRODUCTION TO EACCMA 2004

Treaty Establishing the East African Community

The Treaty establishing the East African Community was signed by heads of government of the partner states on November 30, 1999 in Arusha, Tanzania and came into force on July 7, 2000. The East African Community was formally launched on January 15, 2001. The broad goal of the EAC is to enhance co-operation in all areas for the mutual benefit of the Partner States. In order to reach this goal a Customs Union will be established as the entry point of the Community followed by a Common Market, subsequently, a Monetary Union and ultimately a Political Federation of the East Africa States. Main features of custom union

1) A common set of import duty rates applied on goods from other countries 2) Duty free and quota free movement of tradable goods among its

constituent customs territories 3) Common safety measures for regulating the importation of goods from third

parties such as phyto-sanotary requirements and food standards 4) A common set of customs rules and procedures including documentation 5) A common coding and description of tradable goods 6) A common valuation method for tradable goods for tax purpose 7) A structure for collective administration of the customs union 8) A common trade policy that guides the trading relationships with third

countries outside the union. The Objectives of the Treaty

Promotion of a sustainable growth and equitable development of partner states including rational utilization of the regions natural resources and protection of the environment;

1) Strengthening and consolidating the long standing political, economic, social, cultural and traditional ties by partner states and associations between the people of the region in promoting a people-centered mutual development;

2) Enhancing and strengthening participation of the private sector and civil society;

3) Promotion of good governance including adherence to the principles of democratic rule of law, accountability, transparency, social justice, equal opportunities and gender equality; and

4) Promotion of peace and stability within the region, and good neighborliness among the partner states.

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Background

The East African Community Customs Union commenced operations on 1st January 2005 following the official launching ceremonies that were held simultaneously in Kampala, Nairobi and Dar es Salaam on 31st January 2004. Legal Framework for the EACCU

The following documents provide the Legal framework for the East African Community Customs Union: 1. The Treaty for Establishment of the East African Community 2. Protocol on the Establishment of the East African Community Customs Union 3. The East African Community Customs Management Act 2004 4. Annexes to the Protocol on the establishment of the East African Community

Customs Union (key among them): The EAC Common External Tariff The Program for Elimination of Internal Tariff The Rules of Origin The Safeguard Measures

Function Structure of the EAC Customs Union

A Directorate of Customs and Trade at the EAC Secretariat is established whose role is to:-

(i) Initiate policy on Customs and related trade matters in the Community (ii) Coordinate and monitor among others-

Administration of the Common External Tariff; Enforcement of the Customs law of the Community; and Activities of the Commissioners in implementation of the Customs law.

The Commissioners of Customs in the Partner States will handle day-today operations of Customs, including collection and accounting for Customs revenue and management of human and capital resources employed in Customs. These Commissioners and staff are appointed under the existing Partner States Revenue Authority laws.

Changes brought about by the Customs Union

Common duty rates which will apply uniformly on goods imported into East African Community

Zero rates on most of the goods originating and traded within East Africa An East African Community Customs Act which will apply uniformly in the

three Partner States A standard and harmonized exemption regime which does not give any officer

or minister any discretionary powers to grant tax exemption

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A harmonized list of prohibited and restricted goods which are not allowed to be imported in any one Partner State

Tax incentives for producers of goods for export through Export schemes where duty on inputs is waived. These include:

Export Processing Zones Free trade zones Manufacturing under Bond Duty draw back for manufactures of goods for export Inward Processing

Zero tariffs on most of the capital goods, agricultural inputs, medicines and medical equipment, raw materials and chemicals

Protection of agricultural production such as milk and dairy products, maize, rice, sugar

Simplified Customs procedures at border crossing where joint controls and sharing of facilities will be in place

Computation of taxes based on CIF value at the initial port of discharge in East African Community e.g. Mombasa, Dar es Salaam

Harmonized documents to eliminate duplication and delays in clearance Dispute and appeal mechanism in case of dissatisfaction with a decision made

by Customs Anti-dumping and countervailing measures to deter dumping of cheap goods

onto the East African Market Use of information technology in Customs processes to enhance efficiency

and reduce delays Negotiating as a bloc on trade matters Airfreight cost to be excluded in the value for computation of duty Settlement and compounding of cases by Customs will be upon admission by

the offender to have committed the offence Customs must give reasons for refusal to grant or revoke a license to

Customs Agents, Warehouse Operators and Internal Container Depot Operator

Duty remission Schemes for inputs used in manufacture of some products including:

Sugar for industrial use Paper for manufacture of excise books ADMINISTRATION Without prejudice to the generality of s.3, the directorate shall in relation to the management and administration of customs, coordinate and monitor:

Administration of the common external tariff Enforcement of the custom laws of the community Trade facilitation as provided by article 6 of the Protocol Administration of the rules of origin Compilation and dissemination of trade statistics Application and interfacing of IT in customs administration

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Training in customs related matters Quality control in customs operations and enforcement of compliance Customs related negotiations and Activities of the commissioner in the implementation of this act

The performance of the directorate in performance of its functions under the act is subject to the general directions of the council of ministers, and may consult with or delegate its functions to any commissioner (see below).

Apart from the powers to establish the Directorate of customs, the council of ministers has the following powers:

To establish within the communitys institutional framework a committee To make regulations for the working arrangement between the directorate

and the customs The committee as established above shall have the following objectives:

a) To facilitate the directorates formulation of policies and programs on customs management and administration

b) Facilitate exchange of information between the directorate and the commissioner and

c) Facilitate any other matters on working arrangements between the directorate and customs

Appointment of the commissioner of customs

The commissioner responsible for the management of customs for each of the partner states shall be appointed in accordance with the partner states legislation, and so shall other staff as necessary for the administration of this act and efficient working of the customs(s 5).

The commissioner shall be responsile for the management and control of customs including the collection, and accounting for customs revenue in the respective partner states (s.5.2)

Customs Control of Goods: (s.16)

The following goods shall be subject to Customs Control:-

(a) All imported goods, including imported through the post office, from the time of importation until delivery for home consumption or until exportation whichever first happens.

(b) All goods under drawback from the time of the claim for drawback until exportation drawback means f refund of all or part of any import duty paid in respect of goods exported or used in a manner or for a purpose prescribed as a condition for granting drawback

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(c) All goods subject to any restriction on exportation from the time the goods are brought to any part or place for exportation until exportation

(d) All goods subject to any restriction on exportation from the time the goods are brought to any part or place for exportation until exportation

(e) All goods which are with the permission of the proper officer stored in a customs areas pending exportation.

(f) All goods on board any aircraft or vessel whilst within any part or place in a partner state

(g) Imported goods subject to duty where there is a change of ownership over such goods from an exempt person to a non-exempt person

(h) Goods, which have been declares for or are intended for transfer to another Partner State

(i) Seized goods Interpretations to EACCMA, 2004 Approved place of loading and approved place of unloading mean any quay, jetty, wharf, or other place, including any part of a Customs airport, appointed by the Commissioner by notice in the Gazette to be a place where goods may be unloaded or loaded.

Boarding station means any place appointed by the Commissioner by notice in the Gazette to be a place for aircraft or vessels arriving at or departing from any port or place to bring to for the boarding by or the disembarkation of officers. Bonded warehouse means any warehouse or other place licensed by the Commissioner for the deposit of dutiable goods on which import duty has not been paid and which have been entered to be warehoused. Countervailing duty means a specific duty levied for the purposes of offsetting a subsidy bestowed directly or indirectly upon the manufacture, production or export of that product. Customs area means any place appointed by the Commissioner by notice in writing under his or her hand for the deposit of goods subject to Customs control. Customs warehouse means any place approved by the Commissioner for the deposit of un entered, unexamined, abandoned, detained, or seized, goods for the security thereof or of the duties due thereon. Duty drawback means a refund of all or part of any import duty paid in respect of goods exported or used in a manner or for a purpose prescribed as a condition for granting duty drawback. Export processing zone (EPZ) means a designated part of Customs territory where any goods introduced are generally regarded, as far as import duties and

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taxes are concerned, as being outside Customs territory but are restricted by controlled access. Government warehouse means any place provided by the Government of a Partner State, and approved by the Commissioner, for the deposit of dutiable goods on which duty has not been paid and which have been entered to be warehoused. Import means to bring or cause to be brought into the Partner States from a foreign country. Manufacturing under bond means a facility extended to manufacturers to import plant, machinery, equipment and raw materials tax free, for exclusive use in the manufacture of goods for export. Port means any place, whether on the coast or elsewhere, appointed by the Council by notice in the Gazette, subject to any limitations specified in such notice, to be a port for the purpose of the Customs laws and, in relation to aircraft, a port means a Customs airport. Prohibited goods mean any goods the importation, exportation, or carriage coastwise, of which is prohibited under the EACCMA, 2004 or any law for the time being in force in the Partner States. Re-exports means goods, which are imported and are under Customs control for re-exportation. Restricted goods means any goods the importation, exportation, transfer, or carriage coastwise, of which is prohibited, save in accordance with any conditions regulating such importation, exportation, transfer, or carriage coastwise, and any goods the importation, exportation, transfer, or carriage coastwise, of which is in any way regulated by or under the Customs laws. Export processing Zone means a designated part of customs territory where any goods exported or used in a manner or for the purpose prescribed, in so far as import duties are concerned, as being outside customs territory but are controlled by access. Sufferance wharf means any place, other than an approved place of loading or unloading at which the Commissioner may allow any goods to be loaded or unloaded. Transhipment means the transfer, either directly or indirectly, or any goods from an aircraft, vehicle or vessel arriving in a Partner State from a foreign place, to an aircraft, vehicle or vessel, departing to a foreign destination. Transit means the movement of goods imported from a foreign place through the territory of one or more of the Partner States, to a foreign destination.

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Transit shed means any building, appointed by the Commissioner in writing for the deposit of goods subject to Customs control. Unaccustomed goods includes dutiable goods on which the full duties due have not been paid, and any goods, whether dutiable or not, which are imported, exported or transferred or in any way dealt with contrary to the provisions of the Customs laws. IMPORTATION To import means to bring or to cause something to be brought into United Republic of Tanzania from a foreign country. PROHIBITED GOODS AND RESTRICTED GOODS Reasons for imposition of prohibitions and restrictions: Political reasons The state governments do encourage importation of items or goods that incites or encourage antagonism or resistance to the government in power. Arms and weapons that may be used to fight against the government in power are undesirable and therefore prohibited or restricted. Economic reasons Importation of number of goods has a serious impact on local industries especially manufacturing, agriculture and even employment and inflation levels. Duties imposition plus restriction or prohibitions serve as deterrent measures to check importation that foster both consumption of goods not locally available and safeguard local industries. Social reasons Uncontrolled importation goods has severe effects on social life especially employment, inflation, behaviour and even faith and belief. Prohibition and restriction of goods not conforming to the desired social values and interest serve as measure to check and control such importation of such goods. Security reasons Prohibition and restriction of goods considered being dangerous and harmful to security and safety is necessary to attain a controllable level of the same in any state. Health reasons Restrictions and prohibitions importation of drugs and chemicals approved for use in a given state safeguard its residents against consumption drugs, chemicals and other compounds not conforming to the desired health and social standards. Agricultural reasons

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The barriers are intended to discourage in form of taxing, prohibitions or restrictions of importation or exportation of some plants considered to have impact on the country economy. Imposing tax on agricultural items or goods which is also available locally or which may be produced locally, because the imports to be relatively more expensive as compared to locally produced goods of the same type. Convention for International Trade on Endangered Species (CITES) Importation or exportation of all animals listed as endangered species in the CITES convention is prohibited for the purposes or preserving the endangered species. PROHIBITED GOODS These are goods the importation on which is absolutely not allowed, they are specified in the part of the 2nd schedule of the customs management Act (CMA) as follows: Cocaine False money Hazardous wastes Pornographic materials & indecent articles Counterfeit goods of all kinds Restricted Good These are goods whose importation is prohibited unless any conditions regulating their importation has been certified Arm and ammunitions Precious stones and metals Ivory Firearms and ammunitions Genetically modified products Ozone depleting substances Second hand tires Historical artefacts Psychotropic drugs under international control

- Tear gas live animals and birds IMPORTATION PROCEDURES There are found importation procedures which a person is required to go through when goods are imported. They are as follows:

(a) Entry (b) Examination (c) Valuation (d) Clearance (a) Entry S. 33 of CMA prohibits the unloading of goods from the vessel unless the goods have dully entered Entry involves furnishing by the owner or agent of the goods

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the fully particulars of the goods imported supported by documentary evidence. The documents include the following:

The invoice Bill of lading Single Bill of Entry Import Declaration form Certificate of origin

After lodging the documents with the customs department the proper officer should examine the goods to see weather

Documents are genuine or bona fide Values are reasonable No document is missing The arithmetic calculations are proper To check on prohibitions and restrictions

(b) Examination After processing of the documents has been done then they will be dispatched to the port for examination of the goods by the examination officer. The examinations officer will go with an agent or owner of the goods to make a thorough examination of the goods imported. (c) Valuation This is the determination of the dutiable value and duties payable. The valuation officer will rely on the report issue by the examination officer. (d) The Clearance Clearance involves a release of a gate pass to allow the goods to be removed from the port. A gate pass a release order will be processed only when all the custom duties and port charges have been paid.

PROVISIONAL ENTRIES (S.38) A provisional entry takes place when goods are cleared temporarily due to insufficient or absence of documents, expecting that documents may be brought later for the preparation of the perfect entry. Conditions to be fulfilled: Application in prescribed form specifying the reasons for insufficient

documents Making of a security. The security may be a deposit of an amount which is

equal to the duties payable To perfect the entry within the period of 3months or such further period as

may be allowed by the proper officer. TEMPORARY IMPORTATION (S.117) The CMA provides for exemption of import duties on certain goods imported for a temporally use or purpose. Conditions to be fulfilled before exemption is granted Making an application in a proper form

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Making a deposit or giving a security for the amount of the import duty to which the goods would otherwise be liable

Certify the proper officer that the goods imported for temporally use or purpose only.

Prove of exportation of the goods within such period not exceeding 12 month from the date of the importation or any other period which may be allowed by the proper officer

Example of goods which may be imported temporarily Commercial Travellers samples Stage properties imported for local exhibition Goods imported solely for renovation or repaid Reg. 127 a non resident who want to stay temporarily may have road

vehicle goods for this use and traitors hence may be allowed WARE HOUSING OF GOODS

Definition of the warehouse This is a place approved by the commissioner for deposit of goods which are un-entered unexamined detained or seized for duties payable there on. Types of where houses

i) Customs approved by commissioner general ii) Bonded licensed by commissioner for dutiable goods iii) Government Provided by good, approved by commissioner

Warehousing procedure S.48 - The proper officer before delivery of such goods to a warehouse shall, save

where the commissioner otherwise directs, take accounts of the goods, whether or not such account had previously been taken.

- Record the name of vessel/aircraft/vehicle/parcel post reference; name of the owner of such goods, the number of the packages; the mark and number on each package; the value and particulars of the goods.

- Proper officer shall certify at the foot of the account that the entry and warehousing of the goods is complete.

- Any goods entered for warehousing shall be within 14 days moved to such a warehouse and deposited in the packages in which they were imported.

- Any goods were permitted to be repacked, bulked, sorted etc, they shall be deposited in the packages in which they were contained when that count took place.

- If the cargo is bulk or the warehouse is far away, the commissioner may allow up to a maximum of 45 days.

An one who contravenes the above provision is liable of an offense, and if convicted the goods shall be forfeited.

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In respect of goods not moved to warehouse by the owner, the commissioner may direct such removal to the warehouse at the cost of the warehouse keeper, who shall hold lien the goods for the recovery of such cost. Entry of warehoused goods Goods which have been warehoused may be entered either for:

- Home consumption - Exportation - Removal to another warehouse - Used as stores for aircraft or vessel - Removal to an export processing zone - Removal to a free port

Operations in a warehouse S.51 Where any goods are warehoused the commissioner may permit subject to any conditions imposed:

- Repacking, sorting, bulking - Permit the taking of samples by the owner - Allow the name of the owner as entered in the records changed to a new

owner if application is made by the owner on the prescribed form - Permit the assembly or manufacture of any article consisting wholly or partly

of such goods, and for such purpose the commissioner may allow into the warehouse any duty free or locally produced product necessary for the manufacture of the product.

Where such manufacture happens and the final product is for home consumption, the duty shall be charged on the final product based on the original entry of the components except in the case of crude or partly refined petrol in which case the duty shall be levied on the basis of the final product as if the product had been freshly imported. The same procedure shall apply for blended lubricating oil. Any contravention of the above procedure would result in the goods being forfeited. Re-gauging and revaluation S.52 The commissioner or on the application of the owner and at the expense of the owner may - re-gauge, re-measure, re-weigh, re-count etc any warehoused goods - re-value any warehoused goods liable to duty Where this happens the duty shall be based on the revaluation. However where there is excessive loss or deterioration which has been negligently cause, the duty shall be based on the original amount subject to any reductions that the commissioner may grant Duties of the warehouse keeper

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One receipt of the goods the warehouse keeper should make sure that proper goods are received and they ate in the proper condition and the seal should be intact. The warehouse keeper should not accept the goods whose seals is broken. The warehouse keeper is require to record the full particulars of the goods in the proper register when the goods are in the custom warehouse they can be sorted repacked or assembles by permission of the commissioner general. Customs warehouse charges rent Where, any goods have been sold, then its proceeds are applied in the order to set out below in the discharge of:-

(a) The duties, if any (b) The expenses of removal and sale (c) The rent and charges (d) The port charges (e) The freight and any other charges

If there is any balance after sale, then such balances shall:-

If the goods were prohibited goods or restricted goods in relation to which there had been any contravention or if no application for such balance is made as provided in below, will be paid into the customs revenue.

In any other case be paid too the owner of the goods if he makes application for it within one year of the date of the sale.

If goods cannot be sold may be destroyed or disposed of in such manner as the commissioner may direct. Any officer may refuse delivery from customs warehouse until he is satisfied that all duties, expenses, rent, freight and other charges due in respect of such goods have been paid. Goods deemed to be deposited in a customs warehouse S.43 The proper officer may decide that it is undesirable or inconvenient to deposit certain goods in a customs warehouse and direct such good deposited in some other place. Such goods are deemed to be deposited in a customs warehouse. Inspection and Audit S.236 The Commissioner has the power to:

Verify the accuracy of the entry of goods or documents through examination of books, records, computer stored information, business systems and all relevant customs documents, commercial documents and other data related to the goods.

Question any person involved directly or indirectly in the business, or any person in the possession of documents and data relevant to the goods or entry.

Inspect the premises of the owner of goods or any other place of the person directly or indirectly involved in the operations.

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Examine the goods the goods where it is possible for the goods to be produced.

Drawback of import duty may be allowed under section 139 for the following goods: - Goods imported for use in the manufacture of goods which are exported, - Goods imported for use in the manufacture of goods which are transferred to a

free port, or - Goods imported for use in the manufacture of goods which are transferred to

an export processing zone. Sale of goods deposited in the custom warehouse Where the goods stay for 30days in the customs warehouse without the owner lawfully removing them, them the commissioner shall give a notice of 30 days in the public gazette as the goods will be request to be sold in the public auction. However the commissioner may extend the period in case the goods are owned by the partner states government, diplomat mission or donor agencies. EXPORTATION Prohibited goods as per section A of the 3rd schedule: S.70 All goods the exportation of which is prohibited under any written law in force in the partner states Restricted goods as per section A of the 3rd schedule:

a) All goods the exportation of which is regulated under this act or any law in force in the partner states

b) Waste and scrap of ferrous cast iron c) Timber from any wood grown in the partner states d) Fresh unprocessed fish (Nile perch and tilapia) e) Wood charcoal

2. The following goods shall not be exported in vessels less than 250 tons register Warehoused goods Goods under duty drawback Transhipped goods The council may be an order published in the gazette amend the provisions of the third schedule, either specifically or generally. S. 71. The provisions shall not apply for good in transit, transhipment or for stores of vessels or aircraft (unless the vessel is less than 250 tons) or the goods are of the category that are expressly prohibited or restricted for export under the act or any other law in the partner states.

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S.72 where the goods are for trans shipment, transit, stores etc they should be dealt with within a time as specified by the commissioner, otherwise they amy be deemed prohibited or restricted. Entry of goods for export S.73 Any cargo to be loaded for export must be entered by the owner of such cargo in the manner prescribed, and such entry shall be supported by full particulars and documentary evidence. Failure to do this is an offense and the goods may be forfeited. The vessel shall also be entered for outward movement, and no goods shall be loaded on the vessel before the said entry is made. Loading will be at an approved time and from an approved place of loading Goods that may be loaded without entry S.76 - Goods which are the bona fide personal belongings of passengers, crew, or

vessel - Goods intended for sale or delivery to passengers, crew, and vessel - Mail bags and postal articles in the course of transmission by post - On application by owner to make the entry within 48 hrs and upon issuance of

security on the duties due on the goods.

Goods entered for export, use by passengers, store etc shall not be discharged within the partner states, save with the written permission of the officer and upon such conditions as he may impose. S.77. OFFENSES, PENALTIES, FORFEITURE AND SEIZURES S.193-S.218

1. A person who conspires with another person or persons to contravene the provisions of this act commits an offense and shall be liable on conviction to a term not exceeding 5 yrs.

2. Any person who shoots at a aircraft or vessel in the service of the customs, shoots at any officer maliciously wounds any officer on duty, commits with violence the following: - Obstructs any officer in the execution of his duties - Breaks, destroys, throws over board any goods to prevent the seizure of

such goods, or the securing if such seized goods - Rescues any person arrested for an offense under the act commits an

offense and shall be liable on conviction to imprisonment for a term not exceeding 20 yrs.

3. A person who while committing an offense is found armed or while being so armed is found in the possession of goods liable for forfeiture under the act is liable for imprisonment for a term not exceeding 10 years.

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4. A person who disguises and commits and offense under the act or while disguised is found in the possession of goods liable for forfeiture commits an offense and on conviction will be liable for a term not exceeding 3 years.

5. A person who removes, obliterates, defaces, alters, or imitates the customs

seal or any mark placed on custom goods shall if convicted be liable to a fine not exceeding $2,500 or a term not exceeding 3 years or both.

6. Any person who induces another to commit an offense under the act shall be

liable for a jail term not exceeding 1 years

7. Its an offense to warn an offender, or impending action under the customs act, Offense to assume character of customs officer

8. Master of a vessel, aircraft, vehicle who uses it to smuggle commits an

offense 9. Offense related to prohibited, restricted and un costumed goods- acquires or

is in possession of, causes to be carried coastwise, cause to be boarded, etc is liable to an offense and may be imprisoned for a term not exceeding 5 years or fine not exceeding 50% of the dutiable value of the goods.

10. Offense to import or export concealed goods 11. Offense to make or use false documents 12. Offense to refuse to produce documents 13. Offense to interfere with custom gear-fine $2,500

General penalty A person who commits an offense under this act for which no specific penalty is provided shall be liable to a fine not exceeding $5,000. Where under a conviction under the act a person becomes liable for a fine not exceeding a certain amount, the court may impose a fine not exceeding three times the value of the goods in respect to which the offense was committed or the specified amount whichever is the greater. For the person of the value of the goods the commissioner shall cause such goods to be valued by a customs officer, and such valuation shall not take into account any damage to the goods. Goods liable for forfeiture S.210 - Any prohibited goods - Any restricted goods dealt with contrary to the condition attached to their

importation, exportation or carriage - Any unaccustomed goods - Goods imported, exported or transferred, but packaged in a manner appearing to

be intended at deceiving the customs officer - Any goods imported, exported or transferred for which the entry, application for

shipment or application to unload does not correspond with such goods

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- Goods subject to customs control, which are moved, altered, or in any way transferred.

CUSTOMS DUTIES: CUSTOMS VALUATION OF IMPORTED GOODS Method of determining the customs duties Brussels Definition of value (BDV) The Actual custom valuation (ACV) Brussels Definition of Value (BDV) The Value an article would fetch in the open market between the buyer and seller where the two are in dependent of each other. Objective To facilitate international trade i.e. by having a common way of valuing imported goods. To simplify international negations and comparison of foreign trade statistics. BDV Application in Tanzania Under this method of valuation the normal price was determined under the following assumptions: Goods have been delivered to the buyer at the place of introduction in the

country of importation. The seller will bear all the costs charges and expenses incidental to the sale

and delivery of goods at the part/place of introduction. The buyer will bear any duties or taxes applicable in the country of

importation. The price is the sole consideration and the price should not be influenced by any relationship either:- Commercial Financial or otherwise other than the one created by sale. Costs, charges/and expenses comprising the normal price

Freight Insurance (if not invoiced the rate is 1.5 of C&F) Port charges (in the country of export) Dock due & wharf age (in the country of export) Landing, handling, sorting costs Postage (in the case of post parcels) Demurrage (if any in the country of export) Royalties (copy right and patent) Inspection fees (in the country of export) Advertising discount if invoiced as a deduction.

Charges not allowed as part of the normal price

1. Finance Commission

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Example 1 Purchase price 1,000 USD Finance Commission 100 USD 1,000 USD The normal price is 1,000/= USD

2. Breakage allowance fragile articles Example 2 Supplier gives an allowance as deduction Purchase price 100 USD Breakage all 2% 2 USD 98 USD

This is not allowed so the CIF is 100 USD 3. Trade discounts

Example 3

Purchase price 120 USD Disc. 2% 2.4 USD

117.6 USD If granted to all it is accepted and the CIF will be 117.6 USD If it is specific to certain individuals or institutions then the CIF is 120 USD. Indicator Price Techniques for compiling the indicator price Research: Officers are sent to various countries to get data on prices. Shortfalls on indicator price Non frequent review of the indicator price Poor description of the goods in the list regarding for example model/make Non consideration of the technological advances of the manufacturer Non secrecy of the indicator price i.e. the importers happen to know the indicator prices Lack of legal backing Basic Elements of the BDV There are five elements of the BDV namely

Price Time Quantity Place Level

Price: The normal price includes commission brokerage and the delivery costs to the place of introduction into the country of importation. It excludes duties and taxes applicable in the country of importation.

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If the price includes non-dutiable elements or conversely fails to include dutiable elements, it will have to be adjusted to be brought into conformity with the normal price. They include the following:

Packaging costs (country of export) Handling costs (in country of export) Port charger (in country export) Wharf age charges (in country of export) Insurance costs Freight charges (CIF cost, Insurance & Freight)

Time: to establish a standard value applicable to all importation it is necessary to lay down a fixed time element. The ideal time for goods to be valued is to moment when they are cleared for home use. (i.e. the time when the duty becomes payable). Place: the definition stipulates the delivery of the goods to the buyer at the port or place of introduction in the country of importation. Thus the normal price is the price the goods would fetch for delivery to the buyer at that part or place. Since the normal price is based on the concept of CIF it includes all the costs and charges and expenses involved in delivering the goods to the port of importation. However it excludes duties and taxes paid. Quantity: the normal price is determined on the assumption that the sale is a sale of the quantity to be valued. This is intended to comply with trade practices in respect of each transaction. Level: the level of the transaction means the commercial stage at which sale is concluded e.g. Sale concluded between a manufacturer and wholesaler or between a retailer and consumer. The definition allows the price to be influenced by the level which has to be determined individually for each importation by reference to the facts related to actual goods concerned i.e. The level at which the sale is negotiated can also be accepted for determination of the normal price, despite the fact that same goods might have been sold at different prices to other importers buying at other levels. Shortfall of the BDV

No frequent review of indicator price No consideration of technological change advantages and economics of scale No secrecy of indicator price (manipulability) Lack of legal backing

Actual Customs Value The parties to GATT/Valuation convention saw the need to have harmonised and neutral valuation procedures.

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Under this valuation method the Agreement stipulates that the basis of valuation of goods for customs purposes should, to the greatest extent be the transactional value of the goods being valued. This method generally take the actual value agreed upon between the buyer and the seller in the contract. Therefore the valuation purpose, the ideal price should be the actual price of acquiring the good regardless of the operation market price that may be at the time the valuation procedures are done: The ACV may have the following values prices depending on circumstances Valuation Methods

Transactional value Transactional value of identical goods Transactional value of similar goods Deductive method of determining the value Computed value method Fall back method

TRANSACTION VALUE The customs value of imported goods shall be the transaction value, which is the price actually paid or payable for the goods when sold for export to the partner state, can be taken to be the custom value of goods, if (a) There are no restrictions as to the disposition or use of the goods by the buyer

other than restrictions which: (i) Are imposes or required by law or by the public authorities in the Partner State (ii) Limit the geographical area in which the goods may be resold; or (iii) Do not substantially affect the value of the goods;

(b) The sale or price is not subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued;

(c) No part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made in accordance with the provisions of Paragraph 9; and

(d) The buyer and seller are not related. TRANSACTION VALUE OF IDENTICAL GOODS The transaction value of identical goods in a sale, at the same commercial level and in substantially the same quantity of the goods being valued shall be used to determine the customs value and where no such sale is found, the transaction value of identical goods sold at the different commercial level or in different quantities, adjusted to take account of differences attributable to commercial level or to quantity, shall be used, provided that such adjustments can be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustment. TRANSACTION VALUE OF SIMILAR GOODS

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Where the customs value of the imported goods cannot be determined under the transaction value of similar goods sold for export to the Partner State and exported at or about the same time as the goods being valued; The transaction value of similar goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued shall be used to determine the customs value. This value is used when transaction value of identical goods are not available. If more than one value takes the lower. DEDUCTIVE VALUE The custom value of the imported goods under the provisions of this paragraph shall be based on the unit price at which the imported goods or identical or similar imported goods are sold in the greatest aggregate quantity, at or about the time of the importation of the goods being valued, to persons who are not related to the persons from whom they buy such goods, subject to deductions for the following: Sales commission paid Profit added General expenses added Transport, insurance at other related costs incurred in partner states Customs duties and other related costs incurred in partner states Customs duties and other national taxes payable in partner states of importation or sale of goods. COMPUTED VALUE The custom value under computed value shall consist of the sum of: (a) The cost or value of materials and fabrication or other processing employed in

producing the imported goods; (b) An amount for profit and general expenses equal to that usually reflected in

sales of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to the Partner State;

(c) The cost or value of all other expenses necessary to reflect the costs added such as loading, handling and related charges, and transport and insurance costs in the country of export.

FALL BACK VALUE The customs value shall be determined using reasonable means consistent with the principles and general provisions of this Schedule and on the basis of data available in the Partner State. No customs value shall be determined under the provisions of this paragraph on the basis of: (a) The selling price in the Partner State of goods produced in the Partner State; (b) A system that provides for the acceptance for customs purposes of the higher

of two alternative values; (c) The price of goods on the domestic market of the country of exportation;

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(d) The cost of production other than computed values which have been determined for identical or similar goods in accordance with the provisions of paragraph 7;

(e) The price of the goods for export to a country other than the Partner State; (f) Minimum customs values; (g) Arbitrary or fictitious values.

Example 4 Total cost 5,000,000 Given the following: Port charges 500,000, wharf age charge 200,000, export charge 400,000 in order to arrive at CIF for determining the value of item then, Total cost 5,000,000 Less port charges 500,000 Less wharf age 200,000 4,300,000 This is Deductive method The Computed method will be: The invoice price USD 2,000/= Cost incurred; Transport costs (in export country) USD 50 Handling charges (cost) USD 30 Port charges USD 150 Insurance USD 70 Freight cost USD 200. CALCULATION OF THE CUSTOMS DUTIES The following are the types of taxes which are normally payable on importation of goods. 1) Import duty 2) Excise duty 3) Value Added Tax Method of calculating the Import taxes/duties: Method 1 Example 5 Assume the following information has been provided for item Imported (x) = 8,000 (USD) CIF Import duty 25% Excise duty 15% VAT 18% Exchange rate 1500 Tshs/USD Required: Determine the total Tax liability Method 2 Example 6 The following formula shall be used to determine the total duties payable = [Y =x (1+i) (1+v) X]

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Where y = The total duties payable e =rate of excise duty i = the rate of Imported duty v=rate of VAT x= Value of the Import CIF Using the previous example y = 12,000,000 (1+25%) (1+15%) (1+18%) 12,000,000 12,000,000 x 1.25x1.15x1.18 12,000,000 = 20,355,000 12,000,000 = Tshs 8,355,000/= Changing from FOB to CIF, Assume the following Data is provided relating to good imported by Mr Kajua One bus 10,000 USD (FOB) One Saloon car 4,000 USD (FOB) One Ambulance 800 USD (FOB) Insurance (total) 2,000 USD Freight charges (total) 3,500 USD Suppose Mr Kujua is exempted from paying the customs duties with respect to an ambulance, calculate the total duties that Mr. x will be liable to pay. Assuming the following rates prevail: Import duties 25% Excise duty 15% VAT 18% Exchange rate 1,200 Tzs/USD. EXEMPTIONS Fifth schedule of the (MA) There are two categories of the exemption available in the custom Act, there are as follows: Specific exemptions and General exemptions SPECIFIC EXEMPTIONS There are types of exemptions granted to specific person or institutions due to their personality or due to nature of the activities performed by them. Such persons/institution includes the following: 1) The president of the URT 2) Diplomats and Diplomatic Missions 3) Donor Agencies 4) Partners States (EAC) GENERAL EXEMPTION 1. Air craft operations 2. Containers and pallets (not carrying Ad valorem duty goods) 3. Seeds for sowing 4. Items and Equipment Imported in order to be displayed in Public Museum. 5. Mosquito nets and other materials for manufacturing the Mosquito nets. 6. Educational articles and materials.

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7. Chemically defined compounds to be used as fertilizers. Example 7 Mr. Mwoyo is English who come into the United Republic of TZ solely to work as a chief Accountant in a certain Private company. On his arrival in DSM he was accompanied by the following items: (i) His wearing apparel worth 1500 (ii) Household items worth 2800 (iii) One saloon car which he bought in UK two years back for his personal use

worth 4500 (iv) He also had 2 refrigerators worth 400 and 700 respectively, where the

from one was used by him in his former residence in UK. While the latter one was purchased by him when giving into URT.

(v) One Min-bus (15 passengers) worth 10,000 purchased by him 5 years ago for his person use

(vi) He also came with two office equipment worth 600 and 400 respectively, for official use

(vii) Another saloon car worth 5000 which he bought six months ago in UK for his personal use.

Required: Calculate the total tax liability one the importation of Mr. Mwoyo items assuming the following rates prevailed at the time of importation. Import duty 20% Excise duty 10% VAT 18% Exchange 1800/ Note: All values are CIF inclusive It is assumed that the items imported are liable to all three types of taxes on their importation Example 8 Mr. Hazu had entered into a contract to import 600 pairs of shoes from USA on A July 2009. The agreed value of the contract (CIF) was USD 3000 which was also the market value at that time. It was agreed that the shoes should be imported by 30th July 2009. However, due to unavoidable circumstances, the goods failed to reach the URT in a specific time, but came into URT on 31st January, 2010. At that time the market value of these pairs of shoes was USD 3800. Required: Calculate the total tax liability in the following methods of valuation 1) The Brussels Definition of Value (BDV) 2) The actual Custom Value (ACV)

Rates prevailing on 30th July 2009

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Import duty 20% Excise duty 12% VAT 18% Exchange rate Tshs. 1200/USD Rates on 31st January, 2010 Import duty 25% Excise duty 15% VAT 18% Exclusive Tshs. 1500/USD (Asycuda++ Automated system for customs Data management Is a customs computerized entry Processing systems developed by the United Nations Conference on Trade and Development, UNCTAD). Example 9 Migwo Importers Limited, (MIL) of Mara Tanzania, imported goods that are as per East African Community Customs Management Act (EACCMA) 2004, restricted goods. MIL did observe all requirements regarding importation of restricted goods. Such goods arrived at Mtwara Port on January 3, 2009. The Commissioner of Customs gave several notices and decided to sell the goods by public auction. The goods were sold for Tshs. 22,700,000. MIL had the following obligations to settle: Duties due to customs Tshs. 12,500,000 Port charges of Tshs. 4,500,000 Freight and other charges of Tshs. 13,800,000 Expenses of removal and sale of Tshs. 2,600,000 Clearing and forwarding charges Tshs. 670,000 Rent and charges due to customs Tshs. 8,800,000 Required:

i. Give the above receipts and obligations, determine how the proceed of sale may be distributed

ii. To whom a balance, if any, is supposed to be paid to? Example 10 Tingo Gold Traders of Tanzania imported a used saloon car from Taiwan. The cost of the car includes: Cost (FOB) USD 3,500 Sea freights USD 1,800 Insurance USD 50. Upon arrival of the car at Dar es Salaan Harbor on August 29, 2009, the customs offices issued assessment that in fact was based on the customs value that is higher than the actual CIF by 10%.

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The following rates were applicable at the date of assessing the car for duty and taxes purposes:- Import duty on the car 20% Excise duty on the car 5% Value Added Tax 18% Exchange rate Tshs. 1,350 per USD Required: i. Compute the custom value in (United State Dollar) had the Customs office not

uplifted the value of the car. ii. Compute total duties and taxes payable based on the uplifted value in Tanzania

Shillings iii. Mention any four possible reasons for imposition of import duty on imported

goods. Four possible reasons for imposition of import duty on imported goods 1. To safeguard local industries 2. Security reasons 3. To safeguard endangered species 4. Agricultural reasons 5. To raise government revenues Q.BAHATI COMPANY LIMITED is a newly formed company for carrying out agricultural business. During the first year of its operation, that is 2006; it purchased the following depreciable assets:

A. Computers and data handling equipments, which were used by the company secretary and accountants, 2computers were purchased at Tshs 1,800,000 in 1st February 2006, never the less two minibuses with seating capacity of 30 passengers were bought at same date. B. Three bulldozers each costing Tshs.1, 000,000,furniture and fittings costing in total Tshs.8, 500,000, harrows and plant all costs Tshs.6, 000,000,three 29 passengers minibuses which were used to shuttle the staffs were purchased each Tshs.15,000,000 never the less purchased three FUSO tractors @ Tshs. 1,800,000. C. Two prefabricated wooden houses, which were created in Japan and re-assembled in Makete IRINGA for senior farm managers costing Tshs 20,000,000 each, these houses, were used for about 10,540,800 seconds in 2006.More over at 15th February 2006 the company acquired for Tshs. 3,000,000 the skills of manufacturing juice which life span of it was 5 and 5 months.

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Required: By applying relevant provisions of Income Tax Act 2004, compute the depreciation allowance for depreciable assets. Mr.Musa carried on the business of manufacturing and servicing electrical appliances since then and closed his books of accounts on 31st December of each year the following is the profit and loss account for the period from 1st January 2009.

TSHS.

Gross profit 40,000,000 Other income Acb interest (deposit) 750,000 Bad debt recovered 850,000 Insurance compensation (loss of profits) 2,000,000 Gross rent from residential house 1,500,000 Dividends received from T.B.L (listed in DSE) 1,000,000 46,100,000 Less: expenses Salaries and wages 4,800,000 General expenses 3,600,000 Telephone and electricity 900,000 Depreacition 1,000,000 Income tax 1,000,000 Motor car expenses 5,000,000 Bad and doubtful debts 500,000 Repairs 850,000 Promotion and advertisement 700,000 18,350,000 Net profit 27,750,000 Addition information 1. General expenses included the following. (i) Travel expenses for Mr.misifa to Kampala for holiday tshs.500,000 (ii) Medical expenses for Mr.misifa tshs.100,000 (iii) Legal cost and stamp duties on acquisition of godown in October 2009 shs.900,000 2. Mr.misifa established that 1/5 of the motorcar expenses represent personal and private use. 3. Bad and doubt debts: The whole amount represented a general provision for bad doubtful debts 4. Repairs: The amount was incurred on a used building purchased for use in the business as godown 5. Promotion and advertising: the amount included shs.100,000 being the cost of an advertising sign board installed along Nyerere Pugu road 6. Depreciation allowances were claimed on the basis of the following information

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Class I Class II Class III Written down value b/d 2,400,000 1,700,000 1,800,000 Original cost 4,800,000 2,000,000 1,900,000 Purchases in 2009 2,100,000 3,000,000 1,500,000 Disposal in 2009 500,000 600,000 400,000 7. During the year Mr.Misifa acquired a loan from NMB for the purpose of expanding the business carried on. the loan amounts to tshs.10,000,000/=which bears an interest of 10% per annum. This item has not been treated in the profit and loss account. Required: Compute Mr. Misifas taxable income from the business (15 mark)

Eacc Management Act 2004

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Transcript of Eacc Management Act 2004