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Duty Vs Tariff

Jun 30, 2022Trade Finance

The Difference between Duty and Tariff

What are Duties?

When it comes to taxes on goods and services, there are two main types: direct and indirect. Direct taxes are levied directly on individuals or businesses, while indirect taxes are levied on the sale or purchase of goods and services.

One type of indirect tax is called a duty, which is a tax levied by the government on goods and services manufactured and sold within their country. Duties can also be levied on imported goods, known as import or customs duty.

What Is the Purpose of Duties?

The purpose of duties is twofold. They generate revenue for the local government and protect locally grown goods from being outcompeted by imported ones.

Customs duties are typically collected when border officials are inspecting imported goods. They will verify that the goods match the description provided, check for any trademark issues, and ensure that the country of origin is correct. In some cases, the US has trade agreements with designated countries that allow for duty-free tariffs.

What are the different types of Duties?

When importing goods into the United States, it’s important to be aware of the different types of duties that may be applied. These include Basic Customs Duty (BCD), Countervailing Duty (CVD), and Anti-Dumping Duty (AD).

  • Basic Customs Duty is an indirect tax that is levied on importers and distributors, and is calculated using the Harmonized Tariff Schedule (HTS). The amount paid in duties is then passed on to the consumer.
  • Countervailing Duty refers to an additional import duty levied on subsidized imports from other countries, in order to compensate for the effect of any concessions or subsidies granted by the exporting country.
  • Anti-Dumping Duty is levied when foreign firms sell goods in the US market at a price lower than the fair market value of the same or similar goods in the domestic market. This is done in order to protect domestic businesses from being undercut by unfairly priced imports.

By understanding the different types of duties that may be applied to imported goods, businesses can better plan for the costs of shipping and importing goods into the United States.

Who Pays the Customs Duty?

Tariffs and duties are taxes that are paid by the importer of the goods. The amount of tax payable is determined by the value of the goods being imported, and the country of origin. In most cases, the importer will engage the services of a customs broker to help clear their goods through customs. The customs broker will file the necessary paperwork and pay the taxes on behalf of the importer.

How is Duty Calculated?

The first step in calculating tariffs and duties is to find out the applicable rates. These rates can vary depending on the country of origin and the destination country. You can typically find this information on the website of the relevant government agency, such as the customs department.

Once you know the applicable rates, you can calculate the tariffs and duties by adding up the value of the goods, insurance costs, freight charges, and any other additional expenses. This total is then multiplied by the tariff or duty rate to get the final amount.

What is a Tariff?

Tariffs are direct taxes imposed on products imported into one country from another. It is levied by the government for many reasons, but an important one is to discourage the import of a specific product into the country. Tariffs add to the cost of a product, which in turn, increases the price of that product in the domestic market. By imposing tariffs on an item, the government aims to discourage the import of that item and create demand and sales potential for the product in the domestic market. While tariffs are designed to give domestic players the home advantage, it does not always work that way. One such example is the US Steel & Aluminum Tariffs of 2018.

Why are Tariffs and Trade Barriers Used?

Tariffs and trade barriers can have some important benefits, including protecting local companies and jobs, shielding infant industries, and ensuring national security. Tariffs are typically collected by the customs authority of the country imposing them. In the United States, tariffs on imports are collected by the Customs and Border Protection (CBP) on behalf of the Commerce Department. Tariffs can be a useful tool for businesses, but it’s important to understand how they work and their potential implications.

Different types of Tariffs?

There are two basic types of tariffs: ad valorem tax and specific tariff.

  • Ad valorem tax is a tax levied based on the value of the item, calculated as a percentage of the value of the item.
  • Specific tariff is a tax levied based on a fixed fee calculated per number of items or by weight of the shipment.

Tariffs can be very complex, and there are many different types that can be imposed on imported goods. The type of tariff imposed will depend on the particular goods being imported, as well as the country of origin. Tariffs can be imposed for a variety of reasons, such as to protect domestic industries or to raise revenue for the government.

Tariffs are typically paid by the importer of the goods, and they are often passed on to the consumer in the form of higher prices. Tariffs can also cause tension between countries, and they are sometimes used as a weapon in trade wars.

What is the difference between Duty and Tariff?

Duty and Tariff are two terms that are often used interchangeably, but there is a thin line of difference between the two.

Duty is a type of indirect tax imposed by the government on imported goods as well as locally manufactured products which form a part of the intrastate transaction.

Tariffs, on the other hand, are direct taxes imposed by the government on goods imported from a different country. Tariffs are used to safeguard the domestic manufacturers and suppliers by reducing the level of competition.


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