Duty and tariff are the terms used for levies imposed by the Governments on imports and exports. Both terms are often mingled up. These are used interchangeably. The truth however is that there are minor differences. The layman perhaps is not much concerned about the differences but the industry and trade experts must have in-depth knowledge about the fine lines dividing the two.
What is a Duty?
The duties are simply explained as indirect taxes levied on the consumer. The duty is a tax levied on specific goods and services produced and sold within the country. The duty is called import or custom duty when imposed on imported goods. It is therefore a tax that can be imposed on domestically produced goods as well as on imported goods and services.
Customs duty is termed an indirect tax because it is normally charged to importers and distributors. They pass it on to consumers. Excise duty is a tax known to discourage the use of potentially harmful products such as tobacco and alcohol. Products causing environmental threats are also subject to excise duty.
What is a Tariff?
Governments levy a direct tax on goods and services imported from or exported to a specific country. Tariffs are imposed as a protection measure for safeguarding the interests of domestically domestically-produced goods. It is a way to keep the prices of locally produced goods competitive.
Tariffs are a tool to reduce and discourage the import of specific goods. Such goods are easily available. The Levy of tariffs means to reduce the import of particular goods. Increasing tariffs ensure reduced imports. It has a direct impact on the sale of locally produced goods.
Export tariffs are a way of raising revenue for the government. It covers the processing costs. The tariffs are of many types but the following two are worth mentioning.
This tariff is fixed and applied to every unit of imported items. The value for each unit varies according to the type of goods being imported.
Ad Valorem Tariff
This is a variable tariff and is applied by calculating a certain percentage of the total value of the imported shipment. It is applied according to goods.
Tariffs are tools to discourage imports from a particular country or country. Tariff does not ban the imports but makes the import difficult. The purpose is very clear to protect the local industry producing similar goods.
How Duties Differ from Tariffs?
Both types of taxes can be differentiated easily. The duty is levied on the consumer for specific commodities that are domestically produced, imported, or exported. These can be both goods and services.
Tariffs, on the other hand, are only charged on imports and exports. The reason behind this is simple to protect the home industry. The import of products competing with local production is discouraged. The tool is also used to restrict trade from a particular country, as well as generate revenue for the government. A duty is a specific amount paid as pee-determined tariff rates decided by a government.
In both cases, the taxes are levied by the government and the income generated goes to the government.
Country-Specific Duty and Tariff Rates
The rates at which duty and tariff taxes are charged vary from country to country. The developed countries usually prefer low tariffs. Free trade is the buzzword in the modern-day global village. Free trade agreements, such as NAFTA and the European Union (EU), encourage free trade among member countries. These forums save member states from paying duties and tariffs against mutual trading.
The tariff and duty rates vary across the world. Free trade agreements helped to manage and control international trade by applying fixed and agreed values.