Duties and Taxes 101

Usually whenever items are shipped to other countries, the price only covers the logistics cost of sending the items to the destination. Additional costs would come in the form of Duties and Taxes to which every country has their own way of applying and computing for it. 

The term “Duties and Taxes” usually come hand-in-hand but these are two separate charges. Taxes refer to a charge that is placed on all purchases whether it be imported or not. This can be in the form of a Value Added Tax (VAT) or a Goods and Services Tax (GST). The percentage is different per country but the same percentage would apply no matter what the item is. Duties, which are at times interchangeable with “Tariff” especially for small shipments, are charges that are applied on a specific item based on its category in the Harmonized Tariff Schedule or HS Code. 

Duties and Taxes are dependent on the cost of different factors. Taxes would be charged based on the value of the goods as well as the value of the service. So if you have a 12% tax applied to a shipment, the 12% will be applied to the value of the shipment and the cost of shipping. Duties however, are based on the tariff rate of the product and the value of the product. Tariff rates vary per product but if your product has a 9% tariff rate and has a cost of Php 1000, then the duties would be Php 90. Duties and taxes are usually computed and charged by the customs of the destination country, this is the main reason why logistics companies don’t usually include the duties and taxes for shipping an item since these additional charges are not handled by the logistics company but rather the customs officers. 

Unless there is a special arrangement between the shipper and the logistics company, once a shipment is sent out it is the responsibility of the recipient to pay for the duties and taxes. The payment is handled by the recipient since these are not computed beforehand and only computed when the shipment is visible in the system of the destination country. Duties and Taxes are mainly applied to protect and encourage the manufacturing and purchasing of the products in the destination country. However, depending on the country, duties and taxes are not always applied and are dependent on the value of the shipment and the de minimis of the destination country.