- Personal Finance
Understanding Customs Duties
Customs Duties are a type of tax that must be paid by an importer to his government when goods are brought into his country. Customs duties serve two major purposes: they restrict imports of goods into the country, and they provide revenue for the government.
The governments of many underdeveloped countries, which have difficulty in collecting taxes, rely to a large extent on customs duties for revenue. This was true for the United States in the 18th and early 19th century. Primarily, however, customs duties serve as a protection to domestic companies against competition from foreign companies.
There are two bases for assessing duties- specific and ad valorem. Specific duties may be assessed by quantity, weight, or measure, without regard to value. The duty on long-staple cotton, for example, may be 7 cents per pound. Ad valorem duties, however, are assessed as a percent of the dutiable value. The duty on cigarette lighters, for example, may be 45% of the dutiable value.
In the United States there are several ways of determining the dutiable value. It may be the price paid by the importer; the wholesale price of the product in the country from which the goods were exported; or the wholesale price of a similar item manufactured and sold in the United States.