CIF is the Cost Insurance and Freight of any shipment and customs uses this CIF value for most of its evaluations for duty purposes. When it comes to evaluating a used car for duty purposes, the Cost “C” is not the purchasing price of the car but instead the actual Home Delivery Value (HDV) as at the time the car was manufactured with the rate of depreciation applied to it.
So for instance, assuming a 2008 Toyota corolla with a manufactures’ price or (HDV) of $30000 as at the time of manufacture is purchased at an auctioned price of $4000 shipped to Ghana at a freight of $1500 with a $120 insurance package and a $100 handling charge. Ideally, the CIF value of this car would be $5720 (4000 + 1500 + 120 +100).
However for customs purposes , the cost to be used would be the HDV($30000) with the rate of depreciation(50%) applied to it. Thus (15000+1500+120+100) CIF = 16720.
One may wonder the rationale or where lies the fairness with this method of valuation? Lets take the following two scenarios,
- Ken purchased a fairly used 2007 mazda 3 from the U.S. at a price of $3000. He got this good deal because the seller was an acquaintance of his. He paid $200 for handling charges at the port of origin, $100 as insurance coverage and $1300 as freight (cost of shipment to Ghana). Ken’s CIF would be $4600. With the second scenario,
- Evans also purchased a similar vehicle same type, year and model but this time from Japan in far away Asia. Evans bought his car for $10,000, handled at a cost of $200, insured for $100 and a paid freight of $2000 (due to the distance to Ghana). Evans’ CIF would be $12300.
If customs is to use the normal CIF values for duty purposes, then the duty (usually 20% of CIF value) on both vehicles would be, ken’s (20% of 4600= $920 ) and Evans’ (20% of 12300= $2460).
Judging from the 2 scenarios above, Evans would be paying more duty on the same, make,year,type and model of a car he bought at an already higher price with a higher cost of shipment as compared to Ken. And this would rather not make the system fair enough.
Instead, customs would compute the home delivery value of the 2007 Mazda 3 as against the rate of depreciation to arrive at a cost which would be used for valuation purposes. Assuming the HDV of the car is $30000 and its 7 years old as at 2014. Therefore the rate of HDV to be used would be 50% of 30,000 (15000)
This would then imply that the CIF value to be used for duty purposes would be (15000+1600=$16600) for Ken and (15000+2300=17300) for Evans. So duty(20% of CIF value) to be paid by ken would be $3,320 and that of Evans would be $3,460 which brings about some equity in the valuation for both cars.
Evaluating used items is one complex situation and using the above method by customs brings some degree of fairness in the valuation process.
Age of vehicle Rate of HDV to be used
- Not exceeding 6 months (seen as new) 100%
- Exceeds 6 months but not more than 1 yr 85%
- Exceeds 1 yr but not more than 2 yrs 70%
- Exceeds 2 yrs but not more than 5 yrs 60%
- Exceeding 5 years and beyond 50%
It’s very important to know that when your vehicle is more than 10 years it attracts and extra overage penalty rate that would be added to the total cost of clearing.
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