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What is an Import Duty?

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  • Written By: John Lister
  • Edited By: Kristen Osborne
  • Last Modified Date: 27 March 2018
  • Copyright Protected:
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An import duty or tariff is a tax imposed on goods imported into a country. Historically it was used as part of an attempt to protect domestic businesses from competition from overseas firms. Today an import duty's primary role is usually purely to raise revenue.

Many countries have, at various times, used import duty as a way to give an advantage to businesses in the country by making products from foreign rivals more expensive. In some cases, this had the desired effects, particularly when a country declared independence and wanted to build and establish a more self-sufficient economy. In other cases, it backfired because other countries would then impose their own imports in retaliation. Another effect was that the cost of imported raw materials became more expensive, which in turn meant products made domestically could wind up costing more.

There is ongoing economic debate about the role of tariffs. Traditional economic theories, known as neoclassical, argue against them because they act as a barrier to free trade. This means, for example, that a domestic business won't be under as much pressure to act as efficiently as it would if faced by tariff-free competition from overseas. The counter-argument is that without tariffs, domestic businesses may be more likely to fail, having a knock-on effect because employees losing their jobs will have less money to spend on products from other companies.

Several groups of countries have reached agreements to limit or eliminate all forms of import duty. The European Union has no form of import duty for goods produced in one member country and imported into another. The North American Free Trade Agreement aimed to gradually reduce and remove import duties for goods moving between the United States, Canada, and Mexico.

Who pays an import duty has become something of an issue in the Internet shopping age. In many situations, a consumer buying goods online from an overseas retailer will be responsible for paying the duty. As it is impractical for the consumer to go to a border point such as an airport and fill out the paperwork, the situation in many countries is that the domestic delivery service that will take the goods from the airport to the consumer will pay the duty. It will then demand the consumer repays them the duty, plus a handling fee, before delivering the goods. This can cause particular confusion and even disgruntlement if there appears to be an element of luck as to whether customs officials examine a parcel and decide it is eligible for duty.

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