Taxes, duties, and tariffs are commonly termed the same thing and are often used interchangeably. While they are all forms of charges, the application is different. Let's examine each to see the differences and what situations they apply.

What is a Duty?

Graphic explaining duty

Duties are indirect taxes consumers pay on some goods and services sold within or imported into the country. Imported duty or customs duty is an indirect tax passed on by importers and distributors of the products to consumers.

The rate of custom duties varies depending on the country. It can range from 5% of the product cost to 100%. High customs duties are usually charged when the product is available in abundance yet someone chooses to buy from another country.

The excise duty, on the other hand, is a charge used to discourage the use of certain products. Products harmful to health or capable of causing pollution carry an excise charge.

What is a Tariff?

Graphic explaining tariffs

A tariff is charged solely on imported and exported products. Imported and exported products are often charged to protect local products. To drive up the costs of goods that are produced locally and reduce the number of imported goods, tariffs are placed on imported goods. This is especially relevant for goods manufactured in abundance in a country.

There are two major types of tariffs.

  1. Specific traffic - applies to every good imported
  2. Ad Valorem - a tariff charged on a whole shipment imported

The major difference between duty and traffic is that duty is charged on certain consumer products whether they are exported, imported, or manufactured locally. Traffic on the other hand is charged solely on imported and exported products.

Tariffs are hiked to regulate or restrict trade between countries or to generate revenue for the government. Tariffs are flexible and as such, change quickly especially when used as political leverage.

What is a Tax?

Graphic explaining what is tax

Tax is a mandatory fee paid to the government by working individuals and businesses. As long as you work to earn an income, you are liable to pay tax. Income tax, estate tax, sales tax, and corporate tax are common examples of tax charges which are payable to the government at the federal, state, and local levels.

For example, income tax is charged on earnings; the higher the earning, the higher the tax. Sales tax is paid at the point of purchase by the consumer of the product. And estate tax is paid on the property while corporate tax is paid by businesses.

Tax is more intricate than tariffs and duties. It has a complex nature that includes tax credits, deductions, and a host of other elements.

What are the Major Differences between Duty, Tariff and Tax?

Duty applies to both locally manufactured goods and imported types. Duty is imposed on consumers, it's also known as consumers tax.

Tariffs are flexible and apply to import and export goods. Tariff affects both the importer and exporter and it's subject to frequent change.

Tax is a mandatory charge on income or gains of an individual or a business.

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