What is a Customs Duty?

Customs duties are charges levied on goods when they cross international borders. Customs duties are charged by special authorities and bodies created by local governments and are meant to protect local industries, economies, and businesses. Different products, as well as different countries of origin, may have different customs duties associated with them.

While the two terms are used interchangeably, technically speaking, there is a difference between a duty and a tax:

• A duty is a kind of tax that is placed on goods being imported. The purpose of customs duties is primarily to protect local economies;
• A tax is placed on all goods sold in the country, including those being imported. The primary purpose of taxes is revenue generation for the government.

The main difference is that duties are taxes that specifically apply to imports, while taxes apply to everything, including imports. For the importer, both are charges that are applied to their shipments that must be paid (typically to relevant customs authorities), and both contribute to the overall landed cost. Import compliance and classification solutions can help importers determine which taxes and duties apply to their products.

A tariff is a specific kind of duty levied on certain imports.

• A duty is a charge placed on most (if not all) goods being imported, even though the specific duty rates may vary depending upon the goods in question;
• A tariff is an additional charge levied on select goods entering the country, typically to discourage imports of those goods (this is usually done with the aim of giving further protection to specific local industries).

Most imports have duties associated with them. A few goods (depending on the country or jurisdiction) may have further tariffs imposed on them. Properly classifying imports by using classification systems such as HS and HTS, helps importers determine which, and how much, duties and tariffs are applicable for shipments.

A value added tax is a kind of sales tax imposed on all goods and services sold within a country by its government. It is technically levied for each stage of production, distribution, and sale to the end customer. When importing to countries that have VAT, the VAT forms a portion of the total charges that must be paid on the imported shipment, and contributes to the overall landed cost.

Much like individuals might be eligible for refunds on their income tax in instances where the taxes they have paid (via deductions from their pay checks) are in excess of what they needed to have paid, importers can often claim refunds on excess duties paid. This is known as import duty recovery, and can be availed, with caveats and restrictions, by importers which can demonstrate they have overpaid.

Duty drawback is a form of import duty recovery, collected specifically on merchandise that is only transiting through the country. In other words, duty drawback is a refund of import duties paid for goods that are being re-exported out of the country (or for goods manufactured from ones originally imported and charged import duties for).

Countervailing duties are special duties and tariffs extended to countries of origin where governments may be providing aid and assistance to domestic industries in the form of subsidies and/or tax exemptions. This assistance can then enable those industries to export their products for lower prices, which can potentially damage domestic industries for the importing country. Countervailing duties are usually granted by the International Trade Commission after an investigation.

Anti-dumping duties are special duties that are levied to protect domestic industries from foreign goods or products that may be sold in local markets for a lower price than is considered “fair” under ordinary market conditions. An anti-dumping duty is usually used to offset the cost of “dumping”. Which is determined by calculating the difference between the cost of production and/or price in the country of origin, and the price the good is being sold for in the importing country.