Import duty, also known as customs duty or tariff, is a tax imposed by the Nigerian government on goods sold across international borders. The primary purpose of import duties is to generate revenue for local governments and to increase the final price of imported goods for consumers. This, in turn, encourages consumers to opt for domestically produced goods, which are not subject to this tax.
Duties and taxes play a significant role in determining the total cost of your shipment. Neglecting to manage duties and taxes effectively can lead to severe consequences, including delays in customs clearance, which can disrupt one’s supply chain and delivery timelines.
Moreover, non-compliance may result in hefty fines, additional storage fees, or even the seizure of goods, which can affect one’s business operations and reputation. The Nigerian Customs Service (NCS) administers import duty rates in Nigeria to ensure compliance with national and international trade regulations.
What is Import Duty?
As explained above, import duties are taxes levied by the Nigerian Customs on goods brought into Nigeria. These duties serve several purposes, including generating revenue for the government, protecting local industries from foreign competition, and regulating the flow of goods into the country.
In Nigeria, import rates vary between 5% and 35%, depending on the item. These rates are determined using the Harmonized Commodity Description and Coding System (HS Code). A Harmonized System (HS) code is a globally recognized identifier used to classify goods for international shipping. Customs authorities use this code to apply appropriate regulations, taxes, and duties based on the specific type of goods being shipped.
When completing a waybill for your international shipment, you must include the accurate HS code(s) for your goods. This helps customs authorities understand the shipment’s contents and ensures the correct taxes and duties are applied. Using an incorrect HS code can result in paying the wrong tax rate or, worse, having your shipment delayed or rejected by the destination country.
Commercial airlines registered in Nigeria are exempt from customs duties on the importation of aircraft, engines, spare parts, and components, whether purchased or leased.
In Nigeria, import duties generally fall into the following categories:
- Ad Valorem Duties: These are calculated as a percentage of the Customs Value of the goods, which includes the Cost, Insurance, and Freight (CIF) value.
- Specific Duties: A fixed amount charged per unit of goods, regardless of their value.
- Mixed Duties: A combination of ad valorem and specific duties.
- Excise Duties: Additional taxes imposed on specific goods like alcoholic beverages and tobacco.
How Much is the Import Duty Rate in Nigeria?
Many countries set a minimum order value threshold below which goods are exempt from taxes and duties—this is known as the de minimis threshold. The taxes and duties you owe on a shipment depend on several factors, including:
- The value of the goods including the cost of the goods, insurance, and shipping fees
- Accurate description of the goods to determine the applicable rates
- The country or region of origin
- The destination country’s tariff rates
- The goods’ Harmonized System (HS) code used to globally classify goods
Shipping to an international destination requires careful planning. It is best to start by understanding the customs regulations of the destination country, including import taxes and duty rates, as these will affect your overall costs. Accurate shipping documentation is required, such as a detailed commercial invoice, waybill, or bill of lading.
To ensure your shipment arrives safely and cost-effectively, pack goods in appropriately sized boxes to optimize space and clearly display labels. Be aware of any prohibited or restricted items, as shipping goods without the necessary permits or certificates could lead to customs seizures or fines.
How is Customs Duty Calculated in Nigeria?
Nigeria’s import duty rates are determined based on a globally recognized system called the Harmonized System (HS) Code. The Harmonized System (HS) Code is a standardized numerical system for classifying traded goods. Customs authorities worldwide use it to identify products when determining import duties and taxes. It is important to accurately identify the HS code for your product, as it directly affects the tariff rate applied during the import duty calculation process.
The HS code structure is divided into chapters, headings, and subheadings, which represent different categories of goods and materials. Each product is assigned a unique code, usually six to ten digits long. The first six digits form a universal base shared across countries, while additional digits allow individual countries to provide more specific classifications based on their tariff schedules.
Once you find the correct HS code for your product, the next step is to calculate the duty rate. This rate depends on the type of gods, their country of origin, and their classification under the HS Code. Duty rates are usually a percentage of the product’s value or a fixed amount per unit, 1.e. Duty Rate (%) × Value of Goods = Duty Owed.
If the duty rate for imported shoes (HS code 6403.99) is 20% and the shoes are valued at ₦1,000,000, then 20% × ₦1,000,000 = ₦200,000. You would owe ₦200,000 in import duties to Nigerian Customs.
Factors that can influence import duty rates include:
- Nature of the Goods: Essential goods like medical equipment and agricultural inputs often attract lower duties, while luxury items such as cars and electronics are taxed at higher rates.
- Government Policies: Policies promoting local industries may result in higher duties for competing imports to protect domestic manufacturers.
- International Agreements: Trade agreements with other countries or regional bodies like ECOWAS (Economic Community of West African States) can affect duty rates, offering concessions or exemptions for member states.
- Customs Valuation: Import duty is calculated based on the Cost, Insurance, and Freight (CIF) value of goods. Any discrepancies in valuation can affect the amount of duty payable.
- Local Industry Protection: Import duties are used as a tool to protect domestic industries from foreign competition. Higher duties on imported goods that can be locally produced encourage the growth of local businesses.
Parties Responsible for Import Duties and Taxes
Responsibility for paying import taxes and duties can vary depending on the parties involved and the agreed terms of trade. Here’s a breakdown:
1. Carrier
The transportation service (e.g., DHL Express) acts as a customs broker, handling border documentation to ensure smooth customs clearance. Carriers also collect the associated import taxes and duties.
2. Exporter and Importer
In cross-border B2C transactions, the seller is the exporter, and the buyer is the importer. Payment responsibilities for taxes and duties are defined by “Incoterms”, internationally recognized trade rules. Incoterms are agreements made between the exporter and the carrier.
The two most commonly used are:
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Delivered Duty Paid (DDP)
The seller handles all transportation costs and pays import taxes and duties, ensuring a seamless experience for the customer.
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Delivered Duty Unpaid (DDU)
The seller covers transportation costs, but the customer pays the import taxes and duties upon receiving the package. While this option may save costs for the seller, it often leads to customer dissatisfaction.
3. Importer of Record
This individual or entity is legally responsible for ensuring import compliance. They handle required documentation like licenses and certificates, and pay all duties and taxes. In DDP arrangements, the seller typically assumes this role.
Choosing the right approach is important to balancing costs and maintaining a positive customer experience.
Conclusion
Import duties serve multiple purposes, including protecting local industries by making imported goods less competitive, generating revenue for the government, and regulating trade by controlling the flow of specific goods. These duties are determined based on factors such as the value, type, and classification of the goods. The rates also vary depending on the trade policies of the country and the nature of the items.
While import duties impact economic policies and international trade, handling the calculation and clearance processes can be challenging and time-consuming. For businesses operating in Nigeria, understanding these rates and procedures is essential for smooth operations. By staying well-informed and utilizing available resources, importers can reduce costs and streamline their operations.
