|An aspect of fiscal policy|
In economics, a duty is a kind of tax, often associated with customs, a payment due to the revenue of a state, levied by force of law. The term is often used to describe a tax on certain items purchased abroad. Properly, a duty differs from a tax in being levied on specific commodities, financial transactions, estates, etc., and not on individuals; thus it is right to talk of import duties, excise duties, death or succession duties, etc., but income tax levied on a person is not considered a duty.
Customs duty is a kind of indirect tax which is levied on the import and export of goods of international trade. In economic sense, it is also a kind of consumption tax. Duties levied by the government in relation to imported items is referred to as import duty. In the same vein, duties levied on export consignments is called export duty. Tariff, which is actually a list of commodities along with the leviable rate (amount) of Customs duty, is popularly understood as Customs duty.
Calculation of Customs duty
Calculation of Customs duty depends on the determination of what is called assessable value in case of items for which the duty is levied ad valorem. This is often the transaction value unless the Customs officers determines assessable value in accordance with Brussels definition.
However, for certain items like petroleum and alcohol, Customs duty is realized at a specific rate applied to the volume of the import or export consignments.
H. S. Code
For the purpose of assessment of Customs duty, products are given an identification code that has come to be known as the Harmonized System code. This code was developed by the World Customs Organization based in Brussels. H. S. Code may be from four to ten digits. For example 17.03 is the H. S. Code for molasses from the extraction or refining of sugar. However, within 17.03, the number 17.03.90 stands for "Molasses (Excluding Cane Molasses)".
Introduction of H. S. Code in 1990s has largely replaced what used to be known as SITC or Standard International Trade Classification, though SITC remains in use for statistical purposes. In drawing up the national tariff, the revenue departments often specifies the rate of Customs duty with reference to the H. S. Code of the product. In some countries and customs unions, 6-digit HS codes are locally extended to 8 digits or 10 digits for further tariff discrimination: for example the European Union uses its 8-digit CN (Combined Nomenclature) and 10-digit TARIC codes.
The national authority that responsible for levying taxes on international trade is often referred to as a Customs department. Normally the Customs department operates under a national law and is authorized to examine the cargo in order to ascertain actual description, specification volume or quantity, so that the assessable value and the rate of duty may be correctly determined and applied.
Evasion of Customs duty
Evasion of Customs Duties takes place mainly in two ways. In one, the trader under-declares the value so that the assessable value is lower than actual. In a similar vein, a trader can evade Customs duty by understatement of quantity or volume of the product of trade. Evasion of Customs duty may take place with or without the collaboration of Customs officials. citation needed][
Duty-free is the term that is often used to describe goods bought at ports and airports that do not attract the usual government taxes and customs duties. Some countries impose allowances in order to restrict the number of Duty-free items that one person can import into the country. These restrictions often apply to tobacco, wine, spirits, eau de toilette, gifts and souvenirs. Often foreign diplomats and UN officials are entitled to Duty-free goods. Duty-free goods are imported and stocked in what is called Bonded warehouse.
Duty calculation for companies in real life
With many methods and regulations, businesses at times struggle to manage the duties. In addition to difficulties in calculations, there are challenges in analyzing duties; and to opt for duty free options like Bonded Warehousing.
Companies use ERP software to calculate duties automatically to, on one hand, avoid error-prone manual work on duty regulations and formulas and on the other hand, manage and analyze the historically paid duties. Moreover, ERP software offers an option for customs warehouse, introduced to save duty and VAT payments. In addition, the duty deferment and suspension is also taken into consideration.
- Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 450. ISBN 0-13-063085-3.
- UK National Archive, Looking for records of death duties 1796-1903(example of use of the term death duty)