By Steve Agbota
Freight for a 40-foot container is set to break the $14,000 mark (N21.5 million) as the federal government’s Free On Board (FOB) policy takes hold, raising fears of higher import costs and worsening inflation.
The Nigeria Customs Service (NCS) recently embarked on rigorous modernisation of operations.
The aim is to boost trade facilitation and revenue generation.
One of the initiatives is the introduction of the B’Odogwu platform, a home-grown digital technology to address the glitches in Customs, operations.
The new system is designed to phase out the Nigeria Integrated Customs Information System (NICIS) II.
To continue with its modernisation projects, Customs introduced a 4 per cent Free On Board (FOB) value of imports under the Nigeria Customs Service Act (NCSA) 2023.
Customs intends to generate more revenue to fund its modernisation ambitions and create more employment.
Under FOB, the seller is responsible for all costs and risks up to the point when the goods are loaded onto the vessel at the port of shipment.
However, the introduction of the 4 per cent FOB charge was greeted with wide criticism by stakeholders, especially the clearing agents.
According to them, the 4 per cent charge would add to the cost of imports and negatively impact the ease of doing business at the nation’s ports.
After wide consultation and stakeholders’ engagement, the management of the Nigeria Customs Service suspended the 4 per cent FOB value of imports.
Daily Sun learnt that the Chairman of the National Assembly Joint Committee on Customs and Tariffs, Senator Isah Jibrin, has called for the immediate implementation of the 4 per cent Free-On-Board (FOB) provided by law to further operations of the Nigeria Customs Service.
Speaking during a session with the Minister of Finance and the Coordinating Minister of the economy, Wale Edun, recently, Senator Jibrin questioned the delay in enforcing the FOB provision.
“Do we subject something that has been passed into law to further debate or defence?”, he queried, saying that “the 4 per cent be implemented immediately because it is law”.
At a recent town hall meeting with stakeholders, the Comptroller-General of Customs (CGC), Adewale Adeniyi, unveiled plans to overhaul the Nigeria Customs Service (NCS) revenue structure. He announced that the existing 1 per cent Comprehensive Import Supervision Scheme (CISS) charge and the 7 per cent cost of collection currently imposed on importers would be replaced with a single 4 per cent Free On Board (FOB) levy. According to him, the initiative is designed to consolidate multiple import levies into one, simplify the process, and improve transparency.
“Now, talking seriously, in terms of the 4 per cent FOB that I spoke about in the earlier session, with the implementation of 4 per cent FOB, the 1 per cent CISS and the 7 per cent cost of collection, which is also being charged, will be completely removed.
“Talking about the 7 per cent cost of collection, it is taken from the federation account to administer Customs operations. What this represents is that the three tiers of government, the federal government, the state government, and the other sub-nationals, will comprise 70 per cent of what is brought to the federation account.
“That’s what we have practised in the last 10 years. However, under the new Act, 4 per cent FOB is to be paid up front, and that’s it. Once that is done, it is 100 per cent of the revenue generated by Customs that will go to the federation account. So it’s going to be a win-win situation for all of us.”
Adeniyi emphasised that this change is part of broader reforms accompanying the rollout of the B’Odogwu clearance platform, a homegrown digital solution designed to enhance trade facilitation. He reassured stakeholders that the Nigeria Customs Service remained committed to a transparent and efficient implementation process.
Financial implications
Experts said that the implementation of the 4 per cent FOB will have financial implications on the cost of freight. The cost of freight will increase by an additional 4 per cent, coupled with the high cost of bringing the cargo down to the country from abroad.
Daily Sun learnt that curently, shipper pay over $14,000 as freight to bring in a 40ft container from China, as against the $5000 they used to pay. The additional 4 percent FOB will make things hard for importers because cost of freight will soar.
If the charge is eventually implemented, importers will put the additional surcharge on the final consumers.
The Managing Director of Harsecom Logistics Limited, Haruna Omolajomo, said that any additional fees imposed on any goods would cause hardship for the poor masses because the government wants to increase revenue by fire.
According to him, increasing FOB would affect importers in order to bring goods into the country.
“For instance, if the importer uses about N10 million to clear a 1×20 ft container in terms of freight, clearing, logistics and whatnot, it will now cost an importer about N15 million by the time they add this new FOB.
“The aftermath effect of it is that it will increase the cost of production and when the goods get to the market, the price value-added, for instance, what is supposed to be N20 will now cost N100.
“The country is going through hardship already, and we are not surprised about the 4 per cent because the government is looking for money and taxing many things. The implication will be very drastic because it would cause hardship to the end users who are the consumers,” he said.
Eze Uchendu, Chairman, National Association of Government Approved Freight Forwarders (NAGAFF), Apapa Chapter, said it would worsen the situation of things, and it would cause inflation.
“The end users are our parents, who are in the rural areas, our relatives. It’s not about collecting and collecting. They should look at the economy first, there’s a check per capita of income of an average Nigerian.
“You can see that we are living below poverty. Coming to introduce the 4% FOB, it would not go well for the maritime industry and for Nigeria. I think they should suspend it for now.
“Because we always generate money and send it to the federal government.
“And the federal government will still use it the way they’ve been using all that, while the masses will suffer more. Because the person who is paying you that money is not paying from his pocket. At the end of the day, he does his calculation.
“And that 4% tax would be added to every commodity in that same container. Okay, because some people were saying that even if the government decides to make FOB 100%, Nigerian importers will still pay, then add it to the commodity, add it to the goods. So it’s really the masses, me and you, you will go to buy barrels.
How the 4% FOB is calculated
The 4% FOB charge is calculated based on the value of imported goods, covering the cost of goods and transportation expenses incurred up to the port of loading. For example, if the FOB value of a shipment is N100,000, the 4% levy would be N4,000.
Speaking with Daily Sun, the immediate past Secretary of the Association of Nigerian Licensed Customs Agents (ANLCA) and MD/CEO of Mikky Excellency Nigeria Limited, Alhaji Abdulazeez Babatunde Mukaila, said the 4 per cent FOB is going to increase the cost of clearance, not reduce it.
“I don’t like when people try to pancake the story that they know is not true. Now, what is FOB? FOB is cost of the cargo itself, besides freight. If the freight of my cargo is $10,000 and the freight is $2,000, then its cost of freight is $12,000.
“If I have been paying 1% on my cost, 1% of the $10,000 is just $10. Right? 4% of $10,000 is $40. Now, if you cajole me that 7% is going to be scrapped, 7% of what? If you have $12,000 as cost of goods and the freight, and the duty is 10%, then that means you are paying $1,200 as 10% duty.
“Then 7% of that duty, which is infinitesimal, because the 7% they claim they want to scrap is just a case duty. If your duty is 5%, 7% of 5% is nothing. And it’s 7% of the duty. I don’t know if you understand me now. Let me break it down. I have a container, the cost is $10,000. In Nigeria today, $10,000 is about N16 million. And if I look for 1% of N16 million, it’s going to be N160,000.
“And if you are scrapping 1% to introduce 4%, then instead of $160,000, I’m going to be paying $520,000. Because $160,000 times 4% is what we are looking at, $640,000. So how do you explain that taking away 1% of N16 million and introducing 4% is better? And then you turn around to say post-development level, which is 7% of duty.
“If you scrap it, then you are not adding anything. In a nutshell, it’s going to increase the cost of total duty paid. Very simple. That’s it.
“And they were clever about it. While I was in office, when we went for the defense of this Customs Act, there is no part in that Customs Act that stipulates collection of Customs fee. How they got on it and then passed, I don’t know how that happened. Because we were able to see, we defended it letter for letter, section by section. That part was not there. But now it’s a law. So it’s going to increase the cost of guarantee. It’s as simple as that,” he explained.
Impact of FOB on cost of vehicles and goods
The introduction of the 4% FOB levy is expected to make a difference in the cost of importing goods.
Also speaking with Daily Sun, the Head of Research at the Sea Empowerment and Research Center (SEREC), Eugene Nweke, said without doubt, the 4% FOB levy is a cost component that adds to the cost of clearance from Customs, and it can be considered a burden to the shipper.
According to him, while the NCS may argue that it replaces existing fees and aims to modernise Customs operations, the reality is that it still increases the financial burden on importers.
However, he said the shippers take solace in the fact that the port is considered a value-adding supply chain, and without mincing words, the 4% FOB levy stands as a value addition to the port supply chain, having removed the 1% CISS, and with focus on the giant strides in modernisation.
Meanwhile, an importer, Fred Chukwuma, said that some people erroneously believed that the new law will reduce the cost of vehicles in the country, which is not true.
“To face the reality, the 4 per cent FOB will only increase the cost of importation of vehicles and clearance. Some people were misquoting the Customs CG that the 4% FOB levy will reduce the cost of vehicles. It is not true, and I think the Customs need to organise stakeholders’ meetings to explain to Nigerians how this thing will work when it is finally implemented.
“The economy is hard, but you can’t blame Customs for listening to their principals when they asked them to implement it. The lawmakers even queried the delay in collecting the 4 per cent FOB levy recently. Customs are not lawmakers, their duty is to collect revenue and implement whatever their principals dish out to them. We can’t blame Customs for the high cost of clearance and import duty.
“In layman’s language, the implementation of the 4 per cent FOB will definitely increase the cost of clearance and import, and no doubt about that,” he said.
Impact on Importers
Though the 4% FOB levy can lead to increased costs for importers, which may be passed on to consumers, this could potentially affect the competitiveness of Nigerian businesses and the overall economy.
Nweke said stakeholders have positively argued that the key concerns include: increased costs for importers, potential burden on consumers, and impact on the competitiveness of Nigerian businesses.
However, he said considering the overall benefits in the face of Customs modernisation and trade facilitation objectives, it qualifies as a value addition to the port system.
“Summarily, the 4% FOB levy is a cost component that adds to the cost of clearance from Customs, and it’s essential to acknowledge its potential impact on importers and the economy. While the spirit behind the intentions is desirous and as a legislative revenue requirement, the NCS has a duty to appreciate the fact that the practical implications of this levy on businesses and consumers, hence the need to ensure prompt transparency in the implementation process,” he said.
When is it paid
Nweke said the payment of the 4% FOB levy is typically made during the Customs clearance process. It is calculated and paid together with Customs duty payment, having its own debit notes schedule/protocol.
Hidden charges
Well, according to the NCS, there will be no extra charges after the 4% FOB levy, as it replaces the 1% CISS fee and the 7% collection fee.
However, Nweke said the concerns expressed by stakeholders about the potential burden on importers are worth mentioning, but by and by the envisaged benefits are worth considering.
He said the 4% FOB levy aims to fund the modernisation of Customs services through the B’Odogwu Clearance System, which is expected to promote transparency and efficiency in import processes.
Clearing agents’ agitation
The clearing agents and other stakeholders are worried about how the reintroduction of the 4 per cent FOB will impact the industry and import business.
Speaking with Daily Sun, the Managing Director of Sula Marine Global Limited/foremost freight forwarder, Sulaiman Ayokunle, said after the outcry of the stakeholders, the 4 per cent FOB was suspended, saying now the House has mandated Customs that the 4 per cent FOB should go back to the declaration of all the payments by importers for all the imported goods.
He said the implication is that the duty on imported goods will go up, saying whatever clearing agents are doing before, in terms of payment on imported goods, will go up by a minimum of 4 per cent because it will be introduced.
“And you remember that even CISS is charged on FOB. It means payment for Customs duty will increase and that will be shifted to the final consumers.
“On any imported items, paying additional 4 per cent will make it go up. We are not talking of deduction. We are talking of an additional 4 per cent. So how will the price come down? It will go up because we are not saying it will be deducted. Customs is saying it will be increased. Don’t get something wrong,” he said.
He added that if they are talking of the removal of 1 per cent and 7 per cent, that is a different issue, adding that Customs is to carry out the assignment and generally it will go up.
“If we are not talking of the removal of 1 per cent CISS and 7 per cent sub-charge, CISS is usually paid for imported items that will have a pre-arrival assessment report. 7 per cent is paid for all imported items across board.
“The 7 per cent is charged only on duty. While 4 per cent will be charged on FOB value. If you remove 7 per cent, remove 1 per cent, what you will be left with will be 3.3 per cent of FOB. Because 7 per cent is taken away only from duty. You know FOB is more than duty.
“FOB is the value of freight on board. That is, you are talking of freight and the value of the consignment and 4 per cent taken away only from insurance. But now, if you take away 4 per cent of that, it is a lot of money. Once that is paid, once it is reintroduced now, it is a lot of money. It is not going to reduce anything; rather, it will increase it. That is the fact.
“1 per cent is from FOB, just like 4 per cent will be from FOB. If you take away that, you will be left with 3 per cent. So that 7 per cent is minus and it is meager. Because it is only 7 per cent of duty. It is inconsequential. It is insignificant,” he added.
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