Learning about the import duty?

In the world of international trade, importing goods is one of the key mechanisms driving the economy. However, one factor that importers cannot afford to overlook is "Import Duty"—a critical element that directly impacts a business's costs and overall profitability.

What is the Import Duty?

Import Duty' (also known as 'Customs Duty') is a type of tax collected by the customs authorities of each country on all types of goods imported from abroad. It serves two primary objectives:

To serve as a major source of government revenue.
To act as a tool for controlling international trade.

The collection of import duties helps protect domestic industries from unfair competition from low-priced imported goods, allowing local products to remain competitive in the market. Furthermore, it functions as a mechanism to control the volume of certain imports that may impact national security or the country's economy.

What is Import Tax? How is it different from Import Duty?

The term 'Import Tax' is often used interchangeably with 'Import Duty,' but in reality, Import Tax is a broader term. It refers to all types of taxes levied on imported goods, including both Import Duty and Value Added Tax (VAT).

While 'Import Duty' is a specific portion of the total tax—a fixed rate collected by Customs based on the product’s classification (HS Code)—the VAT is calculated from the total value of the goods (CIF: Cost, Insurance, and Freight) plus the import duty payable. Therefore, Import Duty is just one component of the overall Import Tax.

How much is Import Tax?

The value of import tax is not a fixed figure but depends on several combined factors, including:

The value of the goods (including insurance and freight).
Product details (specific characteristics or materials).
Country of origin.
Tax rates of the destination country.

Additionally, there is a 'De Minimis' threshold (minimum value) set by each country. If the value of the goods is below this threshold, they may be exempt from certain taxes or duties.

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How to calculate the import tax?

The import tax calculation has to consider both import duty and VAT, here is the formular:

Import Duty

CIF (Cost, Insurance, and Freight) x Import Duty Rate (Depends on what product category)

VAT

(CIF + Import duty) x VAT in individual country

Total import tax payable

Total Import Tax = Import Duty + Value Added Tax (VAT)

Accurate calculation is, therefore, critical for any import business. A miscalculation can lead to unexpectedly high costs, which may ultimately result in business losses.

Who is responsible for Import Taxes and Duties?

The responsibility for paying import taxes and duties can be quite complex, as it depends on the international commercial agreements known as Incoterms® (International Commercial Terms). These are standardized terms between the exporter and the importer that define which party is responsible for specific costs, risks, and logistics procedures.

Carrier

Acting as a Customs Broker and managing essential documentation to clear goods through customs formalities.

Importer of Record

The individual or legal entity responsible for ensuring import compliance and covering all duties and taxes.

Exporter and Importer

In the case of DDP (Delivered Duty Paid), the exporter is responsible for all costs, including import taxes. Conversely, under DDU (Delivered Duty Unpaid), the recipient or importer must pay all taxes and duties to the carrier upon delivery of the goods.

Conclusion: Import Duty—The Core of Strategic Cost Management

Understanding import duties is essential for any import business. It is not only about legal compliance but also about effective business planning and precise cost control. A minor error in tax calculation can directly impact your profitability and competitive edge. Therefore, integrated logistics and supply chain management are key to ensuring your import operations run smoothly and achieve sustainable growth.

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With over 20 years of experience in Thailand, Jungheinrich is dedicated to helping you achieve professional inventory management goals. Contact us today to discover the perfect solution tailored to your business needs.

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