Central Valuation Directorate

Introduction to Customs Valuation

Customs valuation dates back to thousands of years among different cultures, with evidence of their use in the Roman Empire and in the Indian sub-continent for collecting Customs Duties. In the contemporary international scenario on trade even after world war I, some valuation methods involved the use of arbitrary and totally fictitious values that are out of line with real prices prevailed in international trade. As a result, there was a pressure for action on the lack of equity of valuation methods used by certain nations. After World War II, General Agreement on Tariffs (GATT) was signed on 30.11.1947, which was to take effect from 1.1.1948. Article VII of the GATT has been set aside for speciffic customs valuation provisions titled as "Valuation for Customs" Purposes which directed that the "actual value" be the value used for Customs purposes.

The first international standard based on the GATT valuation principles, the Brussles Definition of Value (BDV), came into force with the auspices of the Customs Cooperation Council on 25.07.1953, became the method of Customs valuation for assessment of import duties in most countries including Sri Lanka during 1950's. Under this method, a normal market price, defined as,

"... the price that a good would fetch in an open market between a buyer and seller independent of each other .."

was determined for each product. However, during the span of time this 'notional' sytem of value proved to be somewhat far away from commercial realities prevailing in the international trade.

Meantime, between 1973 and 1979, the GATT multilateral trade negotiations known as the "Tokyo Round" took place in Genova where the Agreement on the Implementation of Article VII of the GATT, establishing a 'positive system of Customs valuation' based on the price actually paid or payable for the imported goods was adopted. It is intended to provide a fair, uniform, and neutral system of valuation of goods for Customs purposes, conforming to commercial realities and outlawing the use of arbitrary or fictitious Customs values.

The Uruguay Round of GATT Negotiations started in 1984 was finalized in December 1994. It did make several changes to the existing GATT and the Agreement on the implementation of Article VII, addressing certain concerns of the developing countries. It was during the 'Uruguay Rounds' the provision for 'Customs administrations to reject the Customs value when it has reasonable doubts on the truth and accuracy of the transaction value declared' which is also known as the 'decision on shifting the burden of proof'' (Decision 6.1 based on Article 17), was introduced.

The WTO/GATT Valuation Agreement has been incorporated into Customs Ordinance through the enactment of the Customs Amendment Act 2003, shifting from a 'notioanl system' to a 'positive system' of Customs Valuation.

Application of Customs Valuation

Customs Valuation plays a major role in the collection of revenue when Customs duties are levied on ad valorem basis. Therefore, it becomes essential to lay down in the law itself the broad guidelines for such valuation to avoid arbitrariness and ambiguities. Section 51, 52 and the Schedule E of the Customs Ordinance lay down the basis for valuation of import cargo in Sri Lanka. (Please see the Law and Regulations Page)

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