Logistics 101: Duty

Published: May 13,2020

This week in our 101 series, we dive into duty.

What is duty?

It’s a tariff (or tax) imposed on goods transported across international borders. More than 200 countries use the Harmonized System (HS) to determine customs tariffs and the corresponding duty rates.

Duty rates are usually a percentage of the value of the goods, but can sometimes be based on weight or quantity.

Learn more about duty valuation here.

Why do importers pay duty?

The primary purpose of duty is to protect the country you’re importing goods into by controlling the flow of goods. Duty protects their economy, certain industries, and jobs.

For example, to protect Canada’s dairy industry, duty rates might be set high to avoid large amounts of cheaper foreign dairy products from flooding Canada’s market.

Duty can also be assessed to generate revenue on products such as luxury items, tobacco and alcohol.

Understanding duty rate

A product’s duty rate is determined by several factors:

What is the product?
What is it made out of?
What is it used for?
Where was it made?

How is duty calculated? If the rate is percentage based, an importer determines the value for duty of the product. Then that is multiplied by the duty rate indicated in the customs tariff.

If the rate is based on weight or quantity, the rate is multiplied by the number of items or weight indicated on the customs or commercial invoice. In some specific cases goods may be subject to both a percentage based and a specific rate.

Much of an importer’s understanding of duty depends on a clear understanding of tariff classification and the valuation of your product. The HS and customs valuation regulations are complex.