Customs duty definition
/What is a Customs Duty?
A customs duty is a levy imposed on imported or exported goods. This is a form of tax, and is typically calculated based on the value of the goods being imported or exported, or some other measure, such as its weight or cubic volume. A customs duty is usually imposed in order to provide revenue for a government, though it may also be imposed in order to protect a domestic industry from lower-priced goods coming into the country. Customs duties are especially effective when used to counteract predatory pricing on goods being imported from outside the country.
Advantages of Customs Duties
There are several advantages associated with the imposition of customs duties, which are as follows:
Support of fledgling industries. A customs duty can be quite useful when a government wants to protect a nascent industry located within its borders. By imposing a customs duty on sales of the related products into the country, the government makes these competing goods more expense to consumers, which gives the fledgling industry a better chance to make sales within the country.
Support of the environment. Another advantage is that goods that violate a country’s environmental standards will be effectively barred from being sold, if the customs duty is sufficiently high. For example, if a product is manufactured elsewhere using a process that emits a large amount of carbon dioxide, then a customs duty could be imposed that essentially offsets the cost of the carbon capture fees required to trap that same amount of carbon dioxide from the atmosphere.
Support of national defense. Customs can be used to support local industries that contribute to the defense of the nation. For example, the use of a customs duty on inbound computer chips can be used to protect the domestic chip fabrication industry, since its products may be used in armaments.
Disadvantages of Customs Duties
The primary negative impact of customs duties is on the buyers in the country into which goods are being imported. Assuming that the duty is passed through to the price paid by the buyers, they are indirectly paying the duty to their own government. Customs duties also reduce the competitiveness of products within a country, since they reduce the price pressure on competitors within the country, resulting in less need to be more efficient.