FREQUENTLY ASKED Questions
What is a tariff? A tariff is a direct tax imposed by a government on imported goods or services; therefore, unlike income or sales taxes, tariffs vary by product and by the originating country. Tariffs may be used by a government to generate revenue or protect domestic industries from foreign competition, or as leverage in trade negotiations. In practice, tariffs can impact everything from pricing and supply chains to broader trade policy. Are there different types of tariffs? Yes. There are several types of tariffs that a government can employ, including but not limited to the following: • Specific Tariff: A fixed tariff that is applied to every unit of a good imported. • Ad Valorem Tariff: A variable tariff (the Latin meaning according to value), calculated by working out a certain percentage of the total value of the imported shipment. Example : If an imported good is valued at $1,000 and the tariff rate is 10%, then the tariff is $100. • Compound Tariff : Combines ad valorem and specific tariffs, which means that a compound To calculate the tariff amount, an importer needs to know the customs value, tariff rate, and quantity of the good. Customs value is the declared value of the good at the time of import. The primary method for determining customs value is the transaction value method. Transaction value is the price actually paid or payable to the seller from the buyer for the imported good, and, in almost all cases, includes the following: • Packing and handling costs incurred by the buyer • Freight charges (to the port of entry) • Insurance costs (incurred during transport) • Any selling commissions incurred by the buyer • Any royalty or license fee related to the imported good that the buyer is required to pay as a condition of sale • Proceeds of any subsequent resale that accrue to the seller To find the applicable tariff rate for a good, you will need to look at the tariff schedule of the country you are importing from; typically, the first step is to identify the Harmonized System (HS) Code of the good, which helps determine the specific tariff rate of the good. Alternatively, you can use online tools like the World Trade Organization’s (WTO) Tariff Analysis Online or the World Bank’s World Integrated Trade Solution (WITS). The quantity of the good should be measured or weighed in accordance with the unit of measurement stated in the applicable tariff schedule. tariff consists of a fixed, unit-based fee + a value-based fee. Example : An importer may have to pay 8.8¢/kg plus 20% of the good’s value. How is the amount of a tariff determined? Total Import Duty = Customs Value x Tariff Rate x Quantity Once you have gathered the information above, apply the tariff formula (or utilize the tariff calculation tools linked above). If transaction value (as described above) cannot be used or determined (i.e., there is no actual sale or the sale price is deemed unreliable due to factors
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