As the world is becoming more connected than ever with the internet, we're right in the middle of the enormous rise of global E-Commerce. To give some perspective, every 30 seconds B2C E-Commerce generates USD$ 1.2 million and in 2014, B2C E-Commerce sales hit $1.5 Trillion with expectations to reach $2.35 Trillion by 2017. Let that sink in for a second, $2.35 Trillion.
With the growing amount of apps and tools available to online sellers now, expanding their business globally is now easier than ever. Unparalleled access to global online marketplaces and payment gateways to facilitate these international transactions have been fueling this E-Commerce fire like never before. Though the internet infrastructure has made it easy to connect buyers and sellers, the physical movement of goods from country to country still has many hurdles to overcome.
Those in the international E-Commerce space would be (unfortunately) too familiar with many of them. And of course, today we're talking about Import Duties & Taxes which affect buyers and sellers involved. There still remains a lot of confusion and misunderstanding regarding these dreaded duties and taxes but by the end of this post, you'll have a solid understanding!
To get a real understanding where these Import Duties & Taxes come from, we need to take a step back to economics 101 and understand what exactly Tariffs are. Tariffs is essentially another fancy word for duties & taxes.
Roughly quoting Investopedia's definition: "A tariff is a tax imposed by government on imported goods and services. Used to restrict trade, they effectively increase the price of imported goods and services, making them more expensive to consumers."
If there's one key takeaway from that definition, it's that it makes the price of imports more expensive to consumers.
Now you might be asking, why would a country attempt to restrict trade? Why not let the flow of goods run freely into their country? and most importantly why tax my items for my buyers?!
Of course Tariffs aren't imposed by governments without good reasons. Let's look at the 3 main reasons why they would use Tariffs:
- The government wants to protect domestic companies from foreign competitors
- The government wants to control the flow of certain products
- Raise revenue through taxes
By taxing imports, the government hopes to incentivise domestic consumers to buy from locally than rather abroad. This of course is great for local businesses as their sales will go up and helps the domestic economy. Additionally, if a government believes a certain type of product is harmful or is heavily regulated they may use Tariffs to deter people from buying them in the first place. And of course, if the government needs extra cash in its pocket, they can use tariffs as a method to raise revenue.
So raising the prices of imports aren't necessarily evil when we look at it from a bigger perspective, governments are simply looking out for its own people!
Now remembering that import duties & taxes essentially stem from Tariffs, how does this relate back to you as a seller or buyer?
Well, each country charges import duties & taxes if the value of the imported item exceeds their Customs Threshold. Let's take a look at an example scenario to better understand:
- Camera Niravana is a Hong Kong based Online Camera Store
- All their Camera's are 1200 USD
- The US Custom's Threshold is 800 USD
- Bob is from the US and buys a Camera from Camera Nirvana Online
Since Bob bought a camera that is over the US Custom's Threshold of 800 USD, he will need to pay import duties & taxes to the government. If the value of the camera he bought was 500 USD, then no duties & taxes would occur and he would happily receive his camera at no additional cost. (Great news!)
With that in mind, you can quickly see how Import Duties & Taxes can result in complications when dealing with international orders. If customers aren't familiar with their own countries laws regarding import duties and taxes, then they're going to be in for a shock when they realise their purchase is going to be more expensive than they thought. And if you're a Online Seller, you'll be dealing with these unhappy customers when they try to blame you for these additional costs.
It's a tricky issue to navigate for both sellers and buyers, but by now, you should have a better understanding! In our next post, we'll dive deeper to let you know our top tips in how to deal with the implications of Import Duties & Taxes!
Check out our comprehensive guide to duties & taxes for a full breakdown!