Introduction: –
Tariffs are also known as customs duties, are basically taxes which are imposed on goods and services which are imported or exported. Different tariffs are imposed on different commodities. Tariffs are aimed at altering the relative price of goods and services imported, so as to contract the domestic demand and thus regulate the volume of their imports. Tariffs leave the world market price of the goods unaffected, while raising their prices in the domestic prices in the domestic market. The main goals of tariffs are to raise the revenue of government and more importantly to protect the domestic businesses. This article provides insight about the types and effects.
Types of Tariffs: –
1. Specific Tariffs: –
A specific tax is an import duty that imposes a fixed income tax on each physical component of imported goods. Calculations are based on unit measures such as import weight and volume. For eg. The India government levies a Rs.100 as a specific tariff on every wristwatch imported into the India.
2. Ad valorem Tariffs: –
An ad valorem tariffs is levied as a constant percentage of the monetary value of one unit of the imported goods. It is levied on the total value of the commodity. For eg. 15% tariff levied by Japan on U.S. automobiles. The 15% is a price increase on the value of the automobile, so a $10,000 vehicle now costs $11,500 to Japanese consumers.
3. Mixed Tariffs: –
In order to maximize revenue, mixed tariffs might be represented as either an ad valorem rate based on the imported commodities or as a particular levy based on the imported items measured in units.
4. Compound Tariffs: –
It is a combination of an ad valorem and a specific tariff. That is the tariffs is calculated on the basis of both the value of the imported goods (an ad valorem duty) and a unit of measures of the imported goods (a specific duty).
5. Tariffs Rate Quotas: –
Tariffs rate quotas combine two policy instruments: Quotas and Tariffs. Imports entering under the specified quota portion are usually subject to a lower, tariffs rate.
6. Most-Favoured Nation Tariffs: –
It is a tariff without discrimination. Most favored nation tariffs are what countries promise to impose on other member countries. For eg. If a country within the World Trade Organization would normally give a tariff of 5% to one country, but a tariff of 7% to other member countries.
7. Variable Tariffs: –
A duty typically fixed to bring the price of an imported commodity up to domestic support price for the commodity (making foreign goods more expensive, so that domestic industries are protected).
8. Preferential Tariffs: –
A lower tariff is charged from goods imported from a country which is given preferential treatment. Examples are preferential duties in the EU region under which a good coming into one EU country from another is charged Zero tariffs.
Effects of Tariffs: –
a. Trade is hindered by tariffs, and this harms international business by greatly affecting imports/exports as well as world trade in general.
b. Tariffs protect natives by boosting usage and manufacture of their locally produced importation substitutes.
c. By disregarding comparative advantage, tariffs upset the balance of trade and keep nations from reaping the gains of trade that arise from comparative advantage
d. By charging the value of the tariff, the importing nation’s government receives an increase in revenue.
Conclusion: –
Governments utilize tariffs to achieve a range of political and economic objectives successfully. However, the outcomes are diverse and can impact manufacturers, the public, and the economy in various fashions. Those concerned with international business in terms of policy formulation and implementation ought to determine different tariff types as well as their implications.
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Author: Dhruv Dangodra, Associate Consultant | Email: [email protected] | Contact: +91 98709 25375
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