Point of View

Governments should consider waiving taxes on transport costs until we are back to “normal”

24 October 2021
By Omer Wagner, attorney specializing in Customs law

The exponential increase in transport costs over the past few months has placed a strain on importers and on economic recovery. One solution would be for governments to waive taxes on these costs. In Israel, the law already allows for such an exemption in the case of special circumstances beyond the importer’s control.

At the beginning of 2020, when the COVID-19 pandemic began to take hold, the production of goods ground to a halt in many countries and shipping companies reduced the number of cargo ships leaving ports. The usual flow of imported and exported goods effectively stopped. Due to lockdown regulations and other factors, such as staff shortages, empty containers were no longer collected and sent to Asia, where they were needed. Instead, they were stacked up at inland depots or cargo ports. A backlog of containers began to build up as a result.

The global shortage of containers in Asia, coupled with congestion in many ports, has led to drastic inflation in shipping costs. Let us take Israel as an example. In early 2020, renting a container for sea transport from China to Israel cost about 2,000 US dollars. Today, the price has gone up to approximately 15,000 US dollars. The cost is even higher if ships cannot actually dock in Israel’s ports because of congestion.


The increase in transport costs has led to an increase in the value of goods for Customs purposes in countries levying taxes on the CIF (cost, insurance, freight) value, rather than on the FOB (free on board) value which includes all expenses incurred up until the goods are actually loaded on board a vessel at the departure port.

It is worth recalling that Article 8.2 of the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (WTO Customs Valuation Agreement) allows countries to deliberate on the inclusion of international transport costs in the Customs value of goods.

“In framing its legislation, each Member shall provide for the inclusion in or the exclusion from the Customs value, in whole or in part, of the following: (a) the cost of transport of the imported goods to the port or place of importation;

(b) loading, unloading and handling charges associated with the transport of the imported goods to the port or place of importation; and

(c) the cost of insurance.”

WTO Customs Valuation Agreement

According to the WCO Guide to Customs Valuation and Transfer Pricing, “the majority of WTO Members made the one-off decision to include these elements in the Customs value; known as CIF (cost, insurance, freight) basis.” A few WTO Members, including the United States, Australia and New Zealand, chose not to include these elements.

Israel applies the CIF value. The Israeli Customs Ordinance of 1957 stipulates that the transaction value is the price paid or payable for the goods […] plus the cost of insurance and the costs specified in Section 133. These costs includethe cost of transporting the goods to the port of import or place of import.” There is, however, an exception to this rule when such costs “are incurred due to special circumstances beyond the control of the importer.”

Exceptional circumstances

Price increases in the transport domain can be caused by a wide variety of events such as wars, border closures, trade sanctions and strikes. In such exceptional circumstances, the Director of Israel Customs may decide to exclude certain transport costs according to Section 133 (a) (5) of the Customs Ordinance.

An example of such a case of force majeure “beyond the control of the importer” was the security incidents which occurred in the north of Israel in 2006. On 24 April 2006, the Head of the Customs Administration ruled that transport costs caused by these incidents were not to be included in the import tax calculation: “I stipulate that levies and additional transportation costs incurred by importers due to the security incidents in the north of the country should not be included in the transaction value for the purpose of calculating the import taxes. It is clarified that these are additional transportation, unloading and loading costs caused by security incidents.” On 6 June 2008, the Customs Administration also ruled to exclude container demurrage fees from the Customs value: “The demurrage fee in the importing country, which is charged for the use of the container beyond the period agreed between the ship’s agent and the importer, is not to be included for import taxes.

Another example was the labour strikes which paralysed Israel’s ports in 2008. On 7 September 2008, Customs exempted certain transport costs: “Additional transportation costs incurred by importers due to work stoppages in the ports of Israel will not be considered for the transaction value for the purpose of calculating import taxes. It is clarified that these are additional transportation, unloading and loading costs which were caused due to the labour strikes and the importer has no control over them. The importer must prove the existence of such additional costs.”

Possibility of waiving taxes on transport costs

Israel’s Chamber of Commerce recently appealed to the Director of Israel Customs to set a maximum value for transport costs. In other words, no duties should be imposed on any values higher than this “normal” fixed cost. However, this request was denied. Customs stated that reducing the actual transport costs is not possible and that it has not been proven that the increase in transport costs is indeed due to the COVID-19 crisis or other unforeseen circumstances.

I believe that the question as to whether the shortage of ships and containers as well as the congestion in ports generated by the COVID-19 crisis constitute “special circumstances beyond the importer’s control” deserves to be discussed and looked at in greater detail.

As it happens, Israel’s courts issued the following ruling on a non-trade-related case, according to which the COVID-19 crisis is an unexpected event: It is hard to believe that any reasonable person could or should have expected the full far-reaching consequences of the Corona epidemic, including on the economy and commercial life, in Israel and around the world. We are dealing with an unparalleled epidemic which has no precedent in the last hundred years (at least since the Spanish Flu epidemic which caused many deaths around the world between the years 1918 – 1920).”

Do importers have any control over the changes in world freight rates? Could any of them have anticipated the COVID-19 crisis? I believe the answer is “no”.

Governments should therefore consider the possibility of waiving import duties on transport costs. In certain countries, such as Israel, there is no need to amend the law as it already allows for such decisions to be taken. All that is required is goodwill, along with a little flexibility in interpreting the law.

More information

About the author

Omer Wagner is employed in the Indirect Taxation Department at PWC Israel and Kesselman & Kesselman, and is an attorney specializing in Customs law, purchase tax, indirect taxation, import, export, regulation, trade levies, and international trade. This article solely reflects the views of the author and should not be considered a legal opinion.