Additional Customs Duty and Financial Risks in Imports

Executive Summary

Additional Customs Tax is an additional financial obligation that can be applied in the framework of the legislation related to certain import operations.

In particular, these elements are important when IGV is deemed to be applied and which rate will be based on:

1. Proper GTIP classification of goods.
2. The origin of the goods.
3. Regulations on the relevant group of countries or countries.
4. Date of import process.
5. Terms in the relevant decision and additional lists.
6. Exceptional, exemption or special regulations that can be applied.
7. Other import taxes and trading policy measures.

To manage the IGV risks of companies, the product needs to evaluate the country, legislation and cost data together.

1. What is Additional Customs Tax (IGV)?

Additional Customs Tax is an additional tax that can be applied under the regulations related to the import of certain goods.

Among the basic regulations of the IGV app in Turkey, there are changes made in the Decision and this Decision on the Implementation of Additional Customs Tax in Import, No. 3351.

However, the current rate and conditions to be applied for a particular product should be assessed through the influential attachments and other regulations of the relevant decision.

IGV does not apply at the same rate in all import operations.

Different results may occur depending on the product’s GTİP, origin, related country group and transaction date.

Therefore, IGV assessment should be performed on product and transaction basis.

2. What is the Difference Between Normal Customs Tax With IGV?

Additional Customs Tax with normal customs tax is different regulatory areas that can affect import costs.

The normal customs tax is determined in the framework of the corresponding customs tariff and trade regulations.

IGV is an additional obligation for decisions relating to certain goods and conditions.

Additional customs duty may still apply to the same import even if the ordinary customs duty rate is low or zero.

However, country groups, exemptions and special conditions relating to IGV should also be evaluated.

With normal customs tax, the same thing of the IGV should not be excluded; the legal basis of each obligation should be controlled separately.

3. Additional Customs Tax Which Products Are Applied?

The scope of IGV is determined through the goods specified in the relevant decisions and additional lists.

For this reason, a single general IGV rate can not be mentioned for all product groups.

Specific industrial products, consumption products or other groups of goods may be subject to different regulations.

It is necessary to determine the correct GTIP of the imported product first.

Then it should be checked whether the corresponding GTIP is located in the IGV regulations in force.

However, there is only a list of GTIP, does not mean that the same rate will be applied in each transaction.

The origin, country group and other conditions can also be considered.

4. How Does GTIP Error Affect IGV Risk?

GTİP is one of the basic elements in IGV evaluation.

Using the wrong GTIP can cause incorrect determination of the tax rate or related arrangement to be applied.

For example, technical specifications may require classification of two products in different tariff positions.

Taxes that can be applied in terms of these products can also be different.

Therefore, it is important that companies do not rely on GTIP classification only to descriptions or codes used in the supplier invoices.

In an effective control process;

• technical specifications of the product should be determined,
• the relevant tariff legislation should be examined,
• the basis of classification should be documented,
• classification changes should be followed,
• IGV and other financial obligations should be checked.

GTIP error can pose risk not only in terms of IGV, but also in terms of other import taxes and trading policy measures.

5. Why Is The Country of Origin Matter Than IGV Angle?

The origin of goods in iGV applications is an important element of evaluation.

The products in the same GTİP can give different tax results in different country of origin according to the relevant regulations.

Therefore, importer companies may not only be enough to know what goods are shipped from what country.

The country of shipment with the origin of the goods may be different.

For example, a product is manufactured in the third country, then a distribution center in the European Union can be sent to Turkey.

In this case, the product is shipped from the European Union, does not show that it is derived from the European Union alone.

The result to be applied in terms of IGV should be determined according to the origin and other conditions of the relevant decision.

6. Does A.TR Certificate Remove IGV Automatically?

A.TR circulatory document is a document for free circulation status of goods under the Customs Union between Turkey and the European Union.

However, A.TR document is not the origin certificate.

Therefore, the presence of A.TR document cannot be proved alone that the goods are derived from the European Union.

To determine whether additional customs duty applies, review the relevant rules on goods accompanied by an A.TR movement certificate, origin and any other applicable conditions.

In the processes that are specifically sent to Turkey through the European Union of third-country goods, it should not be excluded if it is only based on the A.TR document and eliminated all additional financial obligations.

The tax or exceptional conditions to be applied in the process of processing should be determined through the applicable regulations.

7. What Unsurers are Important in the IGV Calculator?

Calculate additional customs duty using the assessment base and rate prescribed by the applicable legislation.

Therefore before the start of calculation;

1. The GTIP of the item should be verified.
2. The group of origin and related countries should be determined.
3. The influential rate should be checked on the transaction date.
4. The relevant exception and special conditions should be evaluated.
5. Tax matrah should be determined according to the relevant legislation.

However, the rules for the calculation of the IGV should not be mixed with the calculation of all the import costs.

There are different taxes, logistic expenses and other cost elements in total import cost.

8. Sample Application: Effect of IGV to Import Cost

The following example was prepared only to show the impact of IGV on the cost.

It does not represent the current tax rate or legal status of a real product.

Let’s assume that a company’s customs clearance is imported from 100,000 euros.

For this example, assume that the additional customs duty rate is 10%.

In this example, only the direct amount of IGV has been shown.

Normal customs tax, VAT and other financial obligations are not included in calculation.

The matrah and total cost effect of other taxes should also be evaluated in real import operations.

The 10% rate used in the sample should not be used as an up-to-date tax rate for any GTIP or country.

9. Effect of IGV to VAT and Total Import Cost

Taxes applied in import can directly affect the total product cost.

There may also be effect on VAT matrah in import of some financial obligations according to the relevant tax legislation.

Therefore, companies only need to evaluate the total tax and cost impact, not the amount of IGV.

However, the final cost effect of VAT paid in import in terms of each company may not be the same.

The VAT’s discount may not be made and other financial results may vary according to the relevant legislation and company’s operating properties.

Therefore, it should not be assumed that accounting costs are the same with customs tax costs.

10. Is Anti-Damping Tax Same With IGV?

Anti-damping measures with IGV are based on different legal regulations.

Anti-damping measures can be applied as a result of investigations and assessments on dumping import under the relevant legislation.

IGV is a different financial obligation with its own regulatory framework.

Therefore, the implementation of IGV for a product does not mean that the same product is absolutely exempt from anti-damping measures.

However, different measures should be evaluated in the framework of the relevant regulations of the application and calculation.

Each measure in import cost analysis of companies is important separately.

11. Difference Between IGV and Surveillance Application

Surveillance applications in import are regulations for monitoring of the import of certain products within the scope of the relevant legislation.

With these applications, IGV is not the same legal mechanism.

Certain conditions or documents may appear on the surveillance regulations.

However, the presence of the surveillance application does not mean that a certain IGV rate will be applied alone.

Similarly, the implementation of IGV does not mean that surveillance obligations are eliminated.

Therefore, each arrangement should be evaluated in the framework of their legal conditions.

12. Why Is Import Date Critical?

IGV and other import arrangements may vary in time.

Rates, coverage or application conditions for specific products can be reconstructed in different periods.

Therefore, it is not enough to look at only the current tax rates while evaluating the past import operations of companies.

The date to be taken to determine the arrangement and tax required in the relevant process should be evaluated according to the customs legislation.

In companies that mainly conduct long-term supply contracts, changes in import tax may affect cost planning.

Therefore, regular monitoring of legislation changes is important.

13. How Does IGV Risks Affect Purchasing Decisions?

Purchasing departments often evaluate criteria such as product price, quality and delivery time in the selection of suppliers.

However, the correct calculation of import taxes may result in misleading results in supplier comparisons.

For example, commercial prices for the same product from the supplier in two different countries may be similar.

However, the total cost of import may vary due to its origin and related trading regulations.

Therefore, in the selection of suppliers;

• GTIP of the product,
• country of origin,
• applicable taxes,
• logistics expenses,
• trade policy measures,
• permission and document obligations

should be evaluated together.

This approach can ensure the purchase decisions withstand more reliable cost data.

14. How Does IGV Risks Affect Sales Price?

Import taxes may affect sales prices and profitability through product costs.

In particularly high volume import companies, the total financial effect of changes in tax rates may be important.

For example, high realization of the import cost of a product is expected, it can reduce the gross profit margin that the company targets.

Therefore, it is important to use up-to-date information on import taxes of financial and sales departments.

But how to reflect the cost rise to sales prices, depends on the company’s business strategy and market conditions.

15. Then IGV Risks in Control

IGV applications may be subject to evaluation during the examination of past customs transactions under the relevant legislation.

Specifically;

• Using the wrong GTIP,
• incorrect determination of origin,
• the wrong assessment of the relevant group of countries,
• implementation of non-date rates,
• misinterpretation of exceptional conditions

can create risk.

In such cases, missing tax and other legal results may come to the agenda in the framework of concrete processing and related legislation.

However, it does not mean that each differ automatically gives tax loss or penalties.

First of all, the legal and technical conditions of the process should be evaluated.

16. How to Fix IGV Risks In advance?

It can be helpful to create regular control mechanisms to manage company’s IGV risks.

In this context;

1. The product should be kept up-to-date.
2. GTIP classifications should be checked.
3. The information of the origin should be verified.
4. IGV and other tax rates should be monitored regularly.
5. Import cost calculations should be checked.
6. High-risk operations should be examined on sample basis.
7. Legislation changes should be reported to relevant departments.

It is especially important to evaluate before import in new product and supplier operations.

C-INSPEC Perspective

Financial Risks in Imports Before the Customs Declaration

Risks for import taxes are often evaluated at the stage of customs declaration.

But important decisions that affect the import cost of the company are usually taken before this stage.

Supplier selection, product specifications, origin information, delivery conditions and commercial contracts play an important role in determining the import cost.

For example, when purchasing department order products from one supplier, the GTIP of the product and its origin may not yet be worth it.

In this case, additional taxes that arise in the import phase can give different results from the cost calculations that the company has prepared in advance.

Similarly, it may affect the decision of purchasing with past assumptions, not being followed on time of legislation changes.

Therefore, IGV and other import taxes in the C-INSPEC approach are not only seen as the subject of declaration control.

This area is considered as a financial risk management issue that connects purchasing, finance, foreign trade and sales functions.

The purpose of financial risk management in import is not only calculating taxes, making it visible before trading the impact of these taxes on commercial decisions.

This approach can support cost predictability and corporate control capacity in companies with particularly high import volume.

17. Six Stage IGV Control Program for Companies

Phase 1 — Product and GTIP Inventory

Imported products and used GTIPs are determined.

Step 2 — Analysis of Origin

The information and related trade regulations of products are evaluated.

Phase 3 — Tax and Prescription Control

IGV is examined with normal customs duties and other financial obligations.

Step 4 — Cost Mutabakir

The company's cost calculations are compared with import taxes.

Step 5 — Risky Trading Review

High-risk products, suppliers and past transactions are evaluated.

Step 6 — Continuous Monitoring

Legislation changes are followed and the corresponding control mechanisms are updated.

This program is an example control approach that can be adapted according to the company’s operating features.

18. Import Financial Risk Indicators For Top Management

These indicators are recommended for in-house management; not a mandatory reporting format for all companies.

19. Frequent Errors in IGV Applications

Check deficiencies that companies should pay attention especially include:

1. Evaluate the IGV as the same as the normal customs tax.
2. Not to check the GTIP classification sufficiently.
3. Mix the shipping country together with the origin.
4. Assuming that an A.TR movement certificate always removes liability for additional customs duty.
5. Use non-date tax rates.
6. Evaluate the relevant exception and special conditions.
7. Check out other trading policy measures.
8. Not to include import taxes to purchase cost analysis.
9. Do not share regulatory changes with relevant departments.
10. Do not regularly review systematic tax risks in past transactions.

The elimination of these deficiencies can contribute to the companies to manage import costs and customs risks more effectively.

Frequently Asked Questions

Conclusion

Additional Customs Tax is one of the important financial obligations that can affect import costs and commercial decisions of companies.

It is not enough to know only the tax rate for the correct evaluation of the IGV.

GTİP should be evaluated together with special conditions that may be applied to the origin, date of processing, related country group and.

Regular information sharing should be provided between purchasing, finance and foreign trade departments to manage import costs reliably.

In companies with particularly high import volume, systematic monitoring of legislation changes and product-based financial obligations is important.

Sustainable cost management in import is based on accurate evaluation from the beginning of commercial decisions, not only calculation of taxes in the declaration phase.

Legislation and Official Sources

1. Customs Law No. 4458.
2. Customs Regulation.
3. Decisions and related changes on the Implementation of Additional Customs Tax in Import No. 3351.
4. Import Rejimi Decision and relevant regulations.
5. Value Added Tax Law No. 3065 — provisions regarding taxation in import.
6. Ministry of Commerce — Import taxes, trade policy measures and official explanations on tariff applications.