How to calculate American import duty tax and sales tax
Understanding and accurately being able to calculate American customs import duty tax is required for exporters to determine the correct landed cost of their product and calculate at what price they can profitably offer their product to the market. In this article we will delve into the fundamental principles behind calculating American customs import duty tax and discuss other forms of taxation that may apply to imported goods.
Understanding Customs Import Duty Tax:
Customs import duty is a tax imposed by all governments on specified goods imported into their country. The duty rate is determined by various factors, including the tariff code, the country of origin and the declared value.
Customs publishes the rate of import duty tax liable per product in their tariff book according to the items tariff code. The tariff code, also known as a Harmonised Systems code or HS code, is an international classification system used to categorise goods for importation. Each product is assigned a specific tariff code and the exporter needs to accurately identify the tariff code, preferably on their invoice, for customs clearance.
Many countries have entered into trade agreements with America. These agreements may lower the duty tax that is imposed on a product. For each tariff code the American customs tariff book will indicate the trade agreements applicable and any associated import duty tax savings. To qualify, products need to originate from a country that has a trade agreement with America and have the associated proof of origin. South Africa is part of both the AGOA (African Growth and Opportunity Act) trade agreement which uses the AGOA stamp on the invoice as proof of origin and the GSP (General System of Preferences) trade agreement which uses a form A certificate as proof of origin.
Calculating American Duty Tax:
Customs can charge import duties in four ways, namely:
- Free (no import duty or tax payable);
- Rated or specific;
- Ad valorem; or
- Compounded (combination of rated and ad valorem)
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| Type of Duty | Example |
|---|---|
| Rated or specific | “10 cents per square meter” or “3 cents per dozen” |
| Ad valoren (fixed percentages of the value) | “10% of the value” or “25% of the value” |
| Compound (combination of rated and ad valorem duties applicable to goods mentioned in the same tariff heading) | “20% + 8 cents per kg” or “50 cents per square meter less 20%” |
Follow these steps to calculate the customs duty:
- Obtain the declared value of the imported goods from the commercial invoice.
- Use each item’s tariff code to look up the corresponding duty rate in the American tariff book.
- Apply the appropriate duty calculation methodology (ad valorem, specific, or compound) based on the tariff code and any relevant trade agreements
Example from the American Tariff Book:
Below is an excerpt from the American tariff book for Durum wheat seed. The tariff code is given in the first column titled “Heading/Subheading”. The general rate of duty is given in the column marked “General”. The “Special” column indicates the applicable trade agreement. The GSP trade agreement is indicated by the symbol “A+” and the AGOA trade agreement is indicated by the symbol “D”. Column 2 is for countries listed in general note 3(b) of the tariff book and does not include South Africa.
In the example of Durm Wheat originating from South Africa, the customs duty tax would be free if the import is associated with the correct proof of origin. Countries without a trade agreement with America would need to pay the rated duty tax of 0.65c/kg of wheat seeds imported.
Other forms of customs taxation and sales tax
In this article we only covered general customs import duty tax which is the most common form of customs taxation and the only form applicable to most products. In addition to customs import duty tax applicable products may attract excise duties, anti-dumping duties, countervailing duties, environmental duties, or other product or situation-specific customs taxes. Some products may also benefit from duty tax rebates for manufacturing or incentive programs. Some of these custom taxations, including American excise duties, are not the same throughout America but differ from state to state.
Sales taxation also needs to be taken into account when pricing a product for the end consumer. Sales tax is managed at the state level with each state having different rates and rules for sales tax. Sales tax is a percentage of the sales price. Once you have determined the sales tax percentage for the state that the product will be sold in then you can apply that to determine the total sales tax due.
What do South African exporters need to have in place before exporting to America?
- All South African exporters need to be registered with South African customs as exporters before their first export.
- To make use of the AGOA or GSP trade agreements the exporter first needs to be registered with South African customs for that trade agreement.
- For shipments sent under the AGOA trade agreement, notify your freight agent that they need to get an AGOA customs stamp on the invoice prior to shipment.
- For shipments sent under the GSP trade agreement, a physical Form A certificate of origin needs to be obtained and sent with every shipment.
Import export license can assist with all of the above as well as practical advice tailored to an exporter’s unique situation.
Conclusion:
By familiarising themselves with the principles outlined in this article, exporters can navigate the American customs tariff book and calculate the general import duty tax for their products. Further guidance or consultation may be needed regarding added state-level excise tax, sales tax, additional product or situation-specific taxes or applicable tax incentives that may be used.
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