Tariff

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A tariff is a tax levied on imports or exports.

Contents

History

Tariffs are usually associated with protectionism, a government's economic policy of controlling trade between nations for the better of its own. For political reasons, tariffs are usually imposed on imported goods.

In the past, tariffs formed a much larger part of government revenue than they do today.

When shipments of goods arrive at a border crossing or port, customs officers inspect the contents and charge a tax according to the tariff formula. Since the goods cannot continue on their way until the duty is paid, it is the easiest duty to collect, and the cost of collection is small. Traders seeking to evade tariffs are known as smugglers.

Types

There are various types of tariffs:

  • An ad valorem tariffs is a set percentage of the value of the good that is being imported. Sometimes these are problematic, as when the international price of a good falls, so does the tariff, and domestic industries become more vulnerable to competition. Conversely, when the price of a good rises on the international market so does the tariff, but a country is often less interested in protection when the price is high.

They also face the problem of inappropriate transfer pricing where a company declares a value for goods being traded which differs from the market price, aimed at reducing overall taxes due.

  • A SPECIFIC tariff, is a tariff of a specific amount of money that does not vary with the price of the good. These tariffs are vulnerable to changes in the market or inflation unless updated periodically.
  • A REVENUE tariff is a set of rates designed primarily to raise money for the government. A tariff on coffee imports imposed by countries where coffee cannot be grown, for example, raises a steady flow of revenue.
  • A PROHIBITIVE tariff is one so high that nearly no one imports any of that item.
  • A PROTECTIVE tariff is intended to artificially inflate prices of imports and protect domestic industries from foreign competition (see also effective rate of protection,) especially from competitors whose host nations allow them to operate under conditions that are illegal in the protected nation, or who subsidize their exports.
  • An environmental tariff, similar to a 'protective' tariff, is also known as a 'green' tariff or 'eco-tariff', and is placed on products being imported from, and also being sent to countries with substandard environmental pollution controls.
  • A RETALIATORY tariff is one placed against a country who already charges tariffs against the country charging the retaliatory tariff (e.g. If the United States were to charge tariffs on Chinese goods, China would probably charge a tariff on American goods, also). These are usually used in an attempt to get other tariffs rescinded.

Currently tariffs are set by a Tariff Commission based on information obtained from the government or local authority and suo motu studies of industry structure.

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