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Types of Custom Duty

Customs Duty is the tax imposed on the movement of goods across global borders, representing an indirect tax enforced by the government on importing and exporting goods.

  • 7,591 Views | Updated on: Mar 11, 2024

Customs duties, or tariffs, are crucial in shaping a country’s economic portfolio by regulating international trade. It is an essential pillar of the architecture of international trade, influencing the flow of goods across borders and shaping the economic dynamics between nations.

What is Custom Duty?

Custom duty, also known as import duty, is a tax levied on goods when they cross international borders. It is like a fee collected by a country’s customs authorities on imported or sometimes exported goods. The primary function of customs duty is to generate income for the government. The collected revenue can be used for various purposes, such as infrastructure development, social welfare programs, or national defense.

What are the Different Types of Custom Duty?

Custom duties are crucial in regulating international commerce, balancing trade relationships, and safeguarding domestic industries. The imposition of customs duties allows governments to control the flow of goods across borders strategically.

Basic Customs Duty (BCD)

Basic Customs Duty is the primary charges levied on imported goods. It is a percentage of the assessable value of the imported item and serves as a source of revenue for the government. The rates of BCD can vary based on the nature of the goods and the country of origin.

Additional Customs Duty (Countervailing Duty - CVD)

Countervailing Duty, also known as Additional Customs Duty, is imposed to counteract the impact of subsidies provided by exporting countries on their products. It is levied on the assessed value of imported goods and is intended to ensure a level playing field for domestic producers.

Special Additional Duty (SAD)

Special Additional Duty is applicable to imported goods under the Central Excise Act. SAD is applied at a specific percentage on the value of the imported goods, including the BCD and CVD. The goal is to provide protection to domestic industries from the impact of cheap imports.

Protective Duties

Protective duties are imposed to shield domestic industries from unfair competition from imported goods. These duties are designed to make imported products less attractive by increasing costs through additional tariffs, thereby safeguarding local producers.

Anti-Dumping Duty

Anti-dumping duties are imposed when imported goods are priced lower than their fair market value, causing harm to domestic industries. The objective is to counteract the adverse effects of dumping and restore fair competition in the market.

Safeguard Duty

Safeguard duties are temporary measures implemented to protect domestic industries facing a sudden import surge that threatens to cause serious injury. These duties provide a breathing space for domestic industries to adjust and become more competitive.

Education Cess on Customs Duty

Education Cess is an additional duty imposed on the total of the customs duty payable, including BCD, CVD, and SAD. The revenue generated from this cess is earmarked for funding education initiatives in the country.

Integrated Goods and Services Tax (IGST)

With the introduction of the Goods and Services Tax (GST) in India, IGST is applicable to the import of goods and services. IGST is calculated on the assessable value of imported goods plus other duties and taxes.

What is the Purpose of Custom Duty?

Custom duty is a form of taxation imposed on goods crossing international borders that serves multifaceted purposes that extend beyond revenue generation. The purpose of having custom duty are:

Revenue Generation

One of the primary purposes of customs duty is to generate revenue for the government. As goods enter or leave a country, customs duties are levied based on their value, helping governments accumulate funds that can be channeled into public services, infrastructure development, and other essential areas. This revenue stream becomes particularly crucial as nations strive to meet their financial obligations and invest in the welfare of their citizens.

Protection of Domestic Industries

Custom duty serves as a protective shield for domestic industries, safeguarding them from unfair competition posed by cheaper or subsidized imports. By imposing duties on certain goods, governments can make imported products less attractive to consumers, providing a level playing field for local producers. This protectionist approach aims to preserve jobs, promote economic stability, and ensure the sustainable growth of domestic industries.

Balancing Trade

Custom duties play a pivotal role in balancing trade relationships between nations. By carefully structuring tariffs, countries can encourage or discourage the import and export of specific goods. This strategic approach helps maintain equilibrium in trade partnerships, preventing the domination of one nation’s products over another and building mutually beneficial relationships.

Prevention of Dumping

Custom duties act as a deterrent against a practice known as “dumping,” where foreign producers sell their goods in the importing country at prices lower than their fair market value. This unfair competition can adversely affect domestic industries, leading to job losses and economic instability. Anti-dumping duties, a subset of custom duties, are designed to counteract these practices and protect the interests of local businesses.

National Security Considerations

Customs duties can be employed as a tool to address national security concerns. Governments may impose strategic tariffs on certain goods to ensure a stable and secure supply chain, particularly for products deemed essential for the country’s defense or critical infrastructure.

Final Thoughts

Understanding the various customs duties in India is crucial for businesses engaged in international trade and contributes significantly to the nation’s economic policies. While customs duties are essential for regulating imports and protecting domestic industries, a delicate balance must be maintained to ensure fair competition and economic growth. As India positions itself in the global market, the evolution and judicious application of customs duties will play a pivotal role in shaping its trade dynamics and promoting a competitive and resilient economy.

Key Takeaways

  • Customs duties encompass taxes governments impose on goods crossing borders during import and export transactions.
  • Import duties are charges levied on goods entering a country, while export duties apply to goods leaving a country.
  • These duties serve dual purposes, acting as revenue sources for governments and as tools for regulating international trade.
  • Specific duties involve a fixed charge per unit, simplifying calculations but potentially impacting certain products disproportionately.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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