Insight on Transaction Value as the Basis of Customs Valuation, as Decided by the Court of Appeal

In a significant ruling by the Court of Appeal in October 2023, the case between Game Discount World Tanzania Limited—a subsidiary of South Africa’s Massstores Proprietary Limited—and the Tanzania Revenue Authority (TRA) brought critical insights into customs valuation practices in Tanzania. The decision highlights the application of transaction value as the basis for customs valuation, a matter of great relevance for businesses engaged in cross-border trade.

Background

The case arose after the TRA conducted a post-clearance tax audit covering 2012, 2013, and 2014 to verify the company’s tax compliance. Following the audit, the TRA issued a demand notice for short-levied duties amounting to TZS 3.89 billion. After a review, this amount was reduced to TZS 2.89 billion, of which the company settled TZS 119 million, leaving a balance of TZS 2.77 billion. The dispute centered on the inclusion of warehousing costs and foreign transport expenses in the customs value of imported goods, which the company allegedly under-declared.

Court Hearing

Prior to reaching the Court of Appeal, Game Discount World Tanzania Limited had lost its case at both the Tax Revenue Appeal Board (TRAB) and the Tax Revenue Appeal Tribunal (TRAT). The key issues at stake included the valuation of imported goods, allocation of head office cost recoveries, warehousing costs, and undeclared foreign transport expenses.

The company argued that the tribunal misinterpreted paragraph 9(2)(b) of the Fourth Schedule to the East African Community Customs Management Act (EACCMA), 2004, particularly regarding the inclusion of head office costs in warehousing expenses for customs valuation purposes. The main question was whether the valuation method used by TRA aligned with the provisions of the EACCMA concerning the calculation of customs duties.

On the other hand, TRA maintained that the tribunal correctly applied the law, asserting that loading, unloading, and handling charges linked to the transport of imported goods should be included in the customs value.

Court Decision

After carefully examining the submissions from both parties, the Court of Appeal sided with TRA. The court found that warehouse service costs, though assigned to the Head Office, were not declared for customs duties and taxes during the importation process. As a result, TRA was justified in imposing taxes on these costs.
The court also noted discrepancies in the company’s trial balance for the relevant years. It observed that warehousing costs had been reallocated to the Head Office costs recovery account, effectively zeroing out the original warehousing costs account. This maneuver, along with similar reallocations of transport costs, suggested that the company had not accurately reported these expenses for tax purposes.
The company’s argument that transport costs related to stock from a previous period lacked supporting evidence, and the court highlighted the absence of details regarding closing stock balances, additions to stock, and sales of previously imported goods during the audit period.
In conclusion, the court dismissed the appeal, affirming that the company’s claims were without merit and ordering the company to bear the costs of the case.

This decision underscores the importance of accurate and transparent reporting in customs valuation. For businesses operating in Tanzania, ensuring compliance with valuation rules is crucial in avoiding disputes and penalties. Work with us today to navigate the Tanzanian legal landscape.