When you start the import export business, you need to know about the customs duty and taxes applied to the product you are dealing with. Customs duty and taxes are the necessary things in the import and export business. The customs duty and taxes change every year, so you need to be updated about it if you are starting an import and export business.
Do you know how to calculate import customs duty and taxes in Pakistan? If not keep reading this article, here you will learn how to calculate customs duty and taxes with an example.
Import duty and taxes calculation is quite a difficult process for new traders in Pakistan, but I will try to make duty and taxes calculation easy for you. But before duty and tax calculation I will give you a brief introduction to HS Code (Harmonized Schedule Code).
What is HS Code and why it is important?
Local duty and customs are usually based on the Harmonized Graph (or HS code, a 6-digit code recognized by most countries describing your product category) that you explain. Each country defines specific responsibilities depending on the country of origin. Every product category has its own unique HS Code which allows the local government to implement custom duties according to their customs tariff.
On the other hand, sales taxes will generally be the same, regardless of the country of origin, and are mainly based on the total cost of the order for a transaction or delivery.
How to Calculate Customs Duty and Taxes in Pakistan
Let say we are the commercial importer and we have imported Cocoa Powder (HS Code 1806.1000) in Pakistan Having CNF value of US$ 20569. Now I will tell you how to calculate customs duty and taxes of this cargo.
I will show you step by step calculation of customs duty and taxes.
Calculation of Custom Value
First, calculate the customs value of the goods because customs values will help you find out the import duty, sales, and income tax.
To determine the customs value, we add landing fees, insurance, and other fees (if any) to the cost of imported goods to CNF. After adding all the values, we now convert this value to Pakistani Rupee, so we multiply it by the current exchange rate.
CNF Value of the Cargo = US$ 20569
Landing Charges of Cargo (1% of CNF Value) = US$ 205.69
Insurance (1% of CNF Value) = US$ 205.69
Customs Value in US$ = US$ 20980.38
Let suppose exchange rate in Pakistani Rupee is Rs. 140. Now multiply the customs value in US$ with the exchange rate to get the customs value in local currency.
Custom Value in PKR (20980.38 x 140) = 2937254
Calculation of Regulatory Duty
First, let me tell you what regulatory duty is. The duty that is applied on the specified products that are manufactured or produced in the country but still you import it from other country is known as regulatory duty.
Regulatory duty on the Cocoa Powder (HS Code 1806.1000) is 20% of the customs value in PKR.
Regulatory Duty in PKR (2937254 x 20%) = 587451
Calculation of Import Customs Duty
After the calculation of customs value in Pakistani rupee, check the customs duty percentage of the product. As our product is Cocoa Powder (HS Code 1806.1000) and its import customs duty is 20%.
Import Customs Duty in PKR (2937254 x 20%) = 587451
And as a commercial importer 1% addition customs duty has to be paid.
Addition Customs duty in PKR (29372534 x 1%) = 29373
Calculation of Sales tax of Imported Goods
In Pakistan implied sales tax is 17% on the products. You can calculate the sales tax of the imported goods by adding the calculated amounts of customs value, customs duty, and additional customs duty.
Customs Value in PKR = 2937254
Regulatory Duty in PKR = 587451
Customs Duty in PKR = 587451
Addition Customs duty in PKR = 29373
Now add all the above values
Total Duty in PKR = 4141529
Sales Tax in PKR (4141529 x 17%) = 704060
And we also pay 3% of additional sales tax as a commercial importer.
Additional Sales Tax in PKR (4141529 x 3%) = 124246
Calculation of Income Tax for Imported Goods
There are two types of income tax applied in Pakistan filler, and non-filer. Filer has to pay 6% of income tax, and the non-filer has to pay 9% of income tax to the government. Simply add all the above calculated values to calculate the income tax. Let’s calculate income tax as a filer which is 6%.
Customs Value in PKR = 2937254
Regulatory Duty in PKR = 587451
Customs Duty in PKR = 587451
Addition Customs duty in PKR = 29373
Sales Tax in PKR = 704060
Addition Sales Tax in PKR = 124246
Total Value = 4969835
Income Tax in PKR (4969835 x 6%) = 298190
Total Customs Duty and Taxes of Imported Goods
Now, add all the customs duty and taxes that we have calculated above to get the customs duty and taxes of the imported goods.
Regulatory Duty in PKR = 587451
Customs Duty in PKR = 587451
Additional Customs Duty in PKR = 29373
Sales Tax in PKR = 704060
Additional Sales Tax in PKR = 298190
Income Tax in PKR = 255894
Total Customs Duty and Taxes = 2330771
Final Words
I hope you learned how to calculate import customs duty and taxes in Pakistan. You can see in the above calculation that we have to pay 2330771 PKR customs duty and taxes on the amount of 2937254 PKR for Cocoa powder. I hope this article will help you out in the calculation of customs duty and taxes for your import export business.
