BY: Pankaj Bansal , founder at newspatrolling.com
The key difference between customs duty and excise duty lies in the type of goods they apply to and the stage at which they are levied:
1. Customs Duty:
- Definition: Customs duty is a tax imposed on goods
when they are imported into or exported out of a country.
- Applicability: It applies to goods crossing
international borders.
- Purpose: Its primary purposes are to regulate trade, protect domestic
industries from foreign competition, and generate revenue for the
government.
- Types: It includes various sub-categories like import duty, export duty,
and anti-dumping duty.
- Example: If a company imports raw materials from another country, it may
have to pay customs duty based on the value and category of the goods.
2. Excise Duty:
- Definition: Excise duty is a tax levied on goods
produced or manufactured within a country.
- Applicability: It applies to goods produced for
domestic consumption.
- Purpose: The main purpose of excise duty is to raise revenue for the
government and sometimes to control the consumption of certain goods (like
tobacco and alcohol).
- Types: It includes specific excise duties (on certain goods) and ad
valorem excise duties (based on the value of goods).
- Example: If a company manufactures cigarettes or alcohol within a country,
it may have to pay excise duty on the products.
In summary:
- Customs duty is applied to imported or exported
goods.
- Excise duty is applied to goods manufactured
domestically for consumption within the country.
Customs Duty:
- Legal Framework: Customs duties are governed by
international trade agreements and the customs laws of the respective
country. In India, for example, the Customs Act of 1962 and the Customs
Tariff Act of 1975 regulate customs duties.
- Types of Customs Duty:
- Basic Customs Duty (BCD): This is the standard duty charged on
goods that are imported or exported.
- Countervailing Duty (CVD): Imposed to offset subsidies provided to
foreign exporters by their governments, ensuring a level playing field
for domestic industries.
- Anti-Dumping Duty: Charged when goods are imported at a
price lower than their normal value in the exporting country, preventing
dumping practices.
- Safeguard Duty: Imposed to protect domestic industries
from a sudden surge in imports that could cause injury to the local
market.
- Social Welfare Surcharge: Additional duty imposed for social
welfare purposes in some countries, like India.
- Calculation of Customs Duty: Customs duty is calculated based on the assessable
value or transaction value of goods, which includes the cost,
insurance, and freight (CIF) of the goods. This is then multiplied by the
applicable rate of customs duty to arrive at the final amount.
- Importance: Customs duty serves as a protective
measure for local industries, regulates the flow of goods, and generates
revenue. Additionally, it helps regulate the movement of goods, including
prohibited or restricted items like narcotics and arms.
Excise Duty:
- Legal Framework: In most countries, excise duty is levied
under the Central Excise Act. However, in India, since the
introduction of the Goods and Services Tax (GST) in 2017, most
excise duties were subsumed under GST. Excise duty still applies to
certain goods, such as petroleum, alcohol, and tobacco.
- Types of Excise Duty:
- Basic Excise Duty: This is the standard excise duty
imposed on all manufactured goods.
- Special Excise Duty: Imposed in addition to basic excise
duty on specific goods.
- Additional Excise Duty: Charged in place of sales tax on
certain commodities like tobacco products and textiles.
- Calculation of Excise Duty: Excise duty can be calculated based on:
- Specific duty: A fixed amount is charged per unit of
goods (e.g., per liter, per kilogram).
- Ad valorem duty: This is charged as a percentage of the
value of the goods.
- Importance: Excise duty helps raise government
revenue and control the production and consumption of goods considered
harmful or luxury items (like tobacco and alcohol). It can also be used to
encourage or discourage the production of certain goods within a country.
Key Differences at
a Glance:
Aspect |
Customs Duty |
Excise Duty |
Applies to |
Goods
imported/exported |
Goods manufactured
domestically |
Stage of Levy |
When goods cross
international borders |
During production or
manufacture |
Scope |
International trade |
Domestic goods |
Purpose |
Protect local
industries, regulate trade |
Generate revenue,
regulate consumption |
Example |
Import duty on cars
from another country |
Excise duty on
domestically produced alcohol |
Global and Domestic
Implications:
- Customs Duty: High customs duties can discourage
imports, leading to protectionism. Lower customs duties, often a result of
free trade agreements (FTAs), can promote international trade.
- Excise Duty: Excise duties on products like
cigarettes and alcohol are often increased to reduce consumption due to
their health impacts. In developing countries, excise duties can also be a
significant source of revenue.
Both customs and
excise duties play a critical role in a country’s fiscal policy and its
approach to regulating trade and production.
What is the difference between custom duty and excise duty?
Reviewed by admin
on
October 23, 2024
Rating: