Import Duty

The tax that is imposed on goods imported from other countries

What is Import Duty?

Import duty is the tax imposed on goods that are imported from other countries. Duties are determined by a number of factors, including the value, origin, and type of the goods. They are established and become a source of revenue for the government, as well as to protect domestic producers from intense international competition. Import duty can be used synonymously with tariff and custom duty.

 

Import Duty

 

Summary

  • Import duty is the tax that is imposed on goods imported from other countries.
  • Duties are determined by several factors, such as the value of the goods, origins, and description.
  • Import duty serves as a source of revenue for the government and protects domestic producers from international competition.

 

Understanding Import Duties

Canada’s import duty is enforced by the Canada Border Service Agency (CBSA) and regulated under the Canada Customs Act.

As mentioned, the purposes of import duties are twofold: as a source of revenue for the government and for the protection of domestic producers. A third (although uncommon) purpose is to penalize a certain country in a trade war. For example, in the China-United States trade war, former U.S. President Donald Trump set up additional import duties to make it more expensive for China to export goods into the U.S.

Import duties are generally passed on to the end consumer by being priced into the good or split between the seller and the consumer. In some cases, the duty can be charged directly to the consumer, such as when they order goods from abroad and are required to pay customs duties at arrival.

 

Calculating Import Duties

Duties are calculated based on several factors, including:

  1. The value of the goods – The goods’ value are based on their respective market value, even if not sold
  2. Free trade agreements – Such agreements between the countries may decrease import duties
  3. Description of the goods – The description places the goods into categories in which a blanket duty rate can be applied, subject to other factors
  4. Country of origin
  5. Country-specific regulations
  6. End use of goods – Can be either for personal or commercial use

 

Free Trade Agreements

Trade agreements are trade treaties between countries in which they agree to mutually reduce import duties and other trade barriers. Agreements increase trade between treaty countries as all parties enjoy cheaper imports. Countries not in the agreement will experience reduced trade with the treaty countries. An important example of a trade agreement is the United States-Mexico-Canada Agreement (USMCA), previously known as the North American Free Trade Agreement (NAFTA).

The Regional Comprehensive Economic Partnership (RCEP) is another important trade agreement. Signed in 2020, the RCEP comprises 15 countries, including Vietnam, Thailand, Singapore, South Korea, the Philippines, New Zealand, Myanmar, Malaysia, Laos, Japan, Indonesia, China, Cambodia, Brunei, and Australia. As the largest trade agreement ever, RCEP accounts for a third of the world’s population.

 

Additional Resources

CFI offers the Certified Banking & Credit Analyst (CBCA)® certification program for those looking to take their careers to the next level. To keep learning and advance your career, the following resources will be helpful:

  • Barriers to Entry
  • Globalization
  • Non-Tariff Barriers
  • Regional Trading Agreements

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