US Customs law is so democratic that duties are charged on the FOB values of the good imported minus third party commissions.
Institute of Chartered Accountants of Sri Lanka (ICASL) President and PricewaterhouseCoopers Partner Sujeewa Mudalige however told this reporter that other than top garment exporters most other exporters are ignorant about this accounting arrangement.
USA is SL’s single biggest export market.
Mudalige said that take for instance garments, “a sizeable chunk exported to the USA finds its way through Hong Kong,” he said. But what happens is that the middleman’s commission is added on to the costs when duties are paid at the final destination which is the USA. Duties on garment imports to the USA range from between 15-30%.
“But that should not be the case,” said Mudalige. As US customs law clearly indicates that import duties are payable on the FOB value, with extraneous payments such as commissions paid not having to be added on to the final import price, he said.
However that saving by the correct calculation of pricing restricted to the actual cost involved in the production of a good or service whilst ignoring other components (such as commissions collected by middlemen) is accrued to the importer and not to the end supplier, said Mudalige.
But this mechanism, known in US parlance as “First Sale for Export” benefits the supplier by enhancing his competitiveness and by an arrangement with the importer, he may also be able to derive a cash benefit, said Mudalige.
“I know of one exporter who received US$ one million from a US importer by this arrangement last year,” he said.
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