Tariff - What is a tariff?

A tariff is a tax that’s set on products that are imported from another country, or exported to another country.

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The purpose of a tariff is to secure domestic production and protect certain industries within a country. 

Governments set, raise and lower tariffs in order to restrict or reduce the number of goods being imported or exported. Tariffs can be fixed, or variable according to the price and the type of product being imported or exported.

The 2 kinds of tariffs

There are two types of tariffs, an import tariff and an export tariff. As you can tell by their names, an import tariff is put on goods being imported into the country from abroad. An export tariff is put on goods being sent abroad.

The import tariff and the export tariff are often different values. For instance, the import tariff on steel might be 5%, but the export tariff might be 2%. The import tariff is usually higher to protect domestic businesses.

What is the difference between a tariff and a duty?

The terms tariff and duty are often used interchangeably, but there are a few differences. Both of them are taxes set by the government.

Tariffs are taxes on goods imported from abroad or exported to another country. The government sets the rate of the tariff. If the tariff is 5%, then the import duty is the cash equivalent to the tariff percentage.

For instance, if a company is importing £1000 worth of steel, and the tariff rate is 10% for this type of product, the duty they would pay is £100.

Another difference between a tariff and a duty is that a tariff is set only on goods entering or leaving the country. A duty can also be set on goods that are not leaving the country but are crossing state/county lines.

There are several types of duties including customs duty, excise duty and import duty.

Who pays for tariffs?

Does the buyer or seller pay the tariff? Tariffs are paid by the importing party, in most cases the buyer. The buyer may not necessarily be the customer, it may be a business that will then sell the product to a customer and charge an extra fee to cover the tariff charge, essentially passing the tariff along to the consumer.

This is not always the case, as it depends on several different variables including the country’s laws, which country the product originated, the terms of the tariff and what goods are being imported or exported. Many people believe that the end buyer pays the majority in the form of increased prices.

How do I pay a tariff?

Tariffs are paid to the customs authority when entering a country and usually must be paid before receiving the goods. 

If you buy goods from abroad, they will have to go through customs checks, and then the customs official will decide if there’s a payable tariff on those products and pass it along to the delivery company.

The delivery company will contact the buyer and provide additional information on how to complete the payment, usually by credit card or online payment. Once it has been paid, the delivery company will deliver the goods to the buyer.