3.1 Tariffs & TaxesTariffs and Taxes
According to export.gov, a tariff (or duty—the words are used interchangeably) is a tax levied by a government on the value of an imported product. In some instances, sales taxes, local taxes, and customs fees also will be levied. Tariffs increase the prices of imported goods, thereby making them less competitive within the market of the importing country.
These tariffs and taxes can significantly increase the final price of your product, so you need to understand not only how they will affect sales and pricing, but also how to communicate these extra charges to your customers so there are no surprises during the purchasing process.
It is important to develop some strategies for determining tariffs and communicating them to your customers, as well as some resources you can use that will help you with these calculations.
These tariffs and taxes can significantly increase the final price of your product, so you need to understand not only how they will affect sales and pricing, but also how to communicate these extra charges to your customers so there are no surprises during the purchasing process.
It is important to develop some strategies for determining tariffs and communicating them to your customers, as well as some resources you can use that will help you with these calculations.
Managing Customer Expectations on Tariffs and Taxes
- Understanding what happens after you ship goods to your international customers will help you provide the best possible, most cost-effective customer service. Depending on which Incoterm(s) you apply to the order, one of two things will happen.
- Scenario 1, Delivered Duty Paid (DDP): A package sent DDP arrives at the buyer’s shipping address with all tariffs paid. The delivery service might ask the buyer to sign for it before handing it over.
- Scenario 2, other delivery Incoterms, with Duties Unpaid (e.g., CPT, CIF, or DDU): These shipping terms indicate that the buyer is responsible for paying all tariffs and taxes when the goods arrive. The delivery service either will take the package to the buyer’s address and release it only after the buyer has paid all applicable tariffs and taxes or will send a note informing the buyer that the package has arrived, that tariffs and taxes are owed, and that the package will be released only upon payment of those charges. This is a common practice with the world’s postal services.