When SARS Works Backwards: Understanding Deductive Value in Customs Valuation

Sometimes, SARS doesn’t look at what you paid for your goods. Instead, it looks at what you sell them for.

This often catches importers off guard. After all, customs valuation is expected to start at the supplier invoice, not at the retail shelf. But when earlier valuation methods can’t be applied, SARS is legally entitled to reverse the process.

This is where Method 4: Deductive Value comes into play.

If you’re importing goods that are already sold, distributed, or priced in South Africa, this method becomes highly relevant and potentially risky if you’re not prepared.

Why SARS Uses the Deductive Value Method?

Under Section 66 of the Customs & Excise Act, SARS may apply Deductive Value when:

• Transaction Value (Method 1) cannot be accepted
• Identical or Similar Goods (Methods 2 & 3) are unavailable or unsuitable
• The imported goods are sold in South Africa in the same condition as imported goods

Instead of looking outward to the supplier, SARS looks inward, to the local selling price, and then works backwards to estimate the customs value.

This approach is commonly applied where:

• Goods are imported for local resale
• Retail or wholesale prices are well established
• Pricing structures are relatively predictable
• SARS has access to market data or audit history

How Deductive Value Actually Works?

The logic behind Deductive Value is straightforward:

Local selling price → minus allowable deductions → equals customs value

The challenge lies in what SARS allows to be deducted, and how accurately those deductions are calculated.

Deductions SARS Typically Allows

From the South African selling price, SARS may deduct:

• Profit margins and general overheads
• Inland transport and distribution costs
• Warehousing and handling expenses
• Duties and VAT (reverse‑calculated)
• Sales commissions and marketing costs

What remains after these deductions becomes the customs value.

Practical Example: Deductive Value in Action

Let’s say a product is sold in South Africa at a retail price of R 1,800.

• SARS applies the following deductions:
• Profit & overheads (20%): R 360
• Inland distribution & logistics: R 60
• Duties and VAT: reverse‑calculated

After these deductions, SARS arrives at an approximate customs value of R 1,250.

This value, not your supplier invoice, is now used to calculate duties and VAT.

Where Importers Get Caught Out?

The Deductive Value method sounds logical, but in practice, it can create serious challenges.

Many industries do not have uniform or predictable margins. Pricing may vary due to:

• Brand positioning
• Promotional discounts
• Volume‑based pricing
• Seasonal fluctuations
• Distributor‑specific mark‑ups

If SARS applies assumed or average margins that don’t reflect your actual business model, the result can be an inflated customs value.

This is where disputes often begin.

Industries Most Affected by Deductive Value

Deductive Value is more commonly applied in sectors where resale pricing is visible or traceable, such as:

• Consumer electronics and appliances
• Automotive parts and accessories
• Retail and FMCG imports
• Industrial components with local distribution networks
• Medical and technical equipment

In these sectors, SARS may rely on:

• Retail pricing data
• Distributor margins
• Previous audit benchmarks

If your margins are lower than industry norms, and you can’t prove it, you may be over‑assessed.

Key Risks of Deductive Value Valuation

If not properly managed, Deductive Value can expose importers to:

• Overvaluation of customs value
• Higher duties and VAT
• Retroactive assessments during audits
• Disputes over “acceptable” profit margins
• Increased scrutiny on future imports

Once SARS establishes a valuation benchmark, it may be reused across shipments, making early intervention critical.

How Importers Can Protect Themselves?

Deductive Value doesn’t have to work against you if you’re prepared.

Best Practices to Manage Deductive Value Risk:

• Maintain clear cost breakdowns showing actual margins
• Document logistics, warehousing, and distribution expenses
• Separate marketing and selling costs from the landed cost
• Align transfer pricing and customs valuation logic
• Work closely with an experienced customs broker
• Be ready to justify why your margins differ from industry averages

If your goods are sold through multiple channels, keep evidence showing pricing differences and sales conditions.

The Human Side of Deductive Value

For many importers, Deductive Value feels unfair because it assumes a “standard” business model in an environment where few businesses are standard.

Margins are shaped by competition, currency volatility, supply chain disruptions, and local market realities. SARS understands this, but it relies on evidence, not explanations.

The more transparent your records, the more defensible your position.

How Transglobal Cargo Supports Deductive Value Cases?

At Transglobal Cargo, we support importers not only in moving goods but in protecting their customs position.

Our team assists with:

• Valuation risk reviews before import
• Documentation alignment between finance, sales, and logistics
• Customs audit preparation and responses
• Broker coordination during SARS queries
• High‑compliance imports across Africa and beyond

We understand how valuation decisions affect cash flow, pricing strategy, and long‑term compliance.

Conclusion: When Selling Price Becomes the Starting Point

Deductive Value turns customs valuation on its head. Instead of asking what you paid, SARS asks what you earned, and works backwards.

For importers who understand this method and prepare for it, Deductive Value can be managed effectively. For those who don’t, it can quietly erode margins and create long‑term compliance exposure.

Working with the best freight forwarder in Africa means having a partner who understands not just transport, but the financial and regulatory mechanics behind every shipment.

📌 Stay tuned for the next article in this series: When Manufacturers Must Lift the Curtain: Understanding SARS’s Computed Value Method