By FMTeam The concept of custom duty isn’t very hard to understand actually, it is just a fee or charge that is implemented/imposed by the government of one nation on the import and export of any product. So yes, it is more like a tax. And if you are wondering why this is even imposed on the products going in and out of the country, then you should not be skipping today’s post. Here, we are about to take a good look at the merits and demerits of custom duty, so that you can understand what it is, why it is important, and what negative sides it has. Alright, here we go now.
Merits of Custom Duty
1. Bringing in Cash for the Government
One of the most notable and significant benefits of the customs duty is its ability to raise much-needed revenues for the government, that’s for sure. And yes, this money is important due to the fact that it funds basic public services like education, healthcare, and infrastructural development. You know, without this revenue, governments may become incapable of providing such services that are very important for the well-being of their citizens of the country aka the general public.
2. Giving Local Industries a Fighting Chance
Custom duties also have a huge impact on the protection of small local industries from foreign competition, but how? Well, you see, when goods are imported from other countries, they are often offered at lower prices than those of local products that are only because of the cheaper production processes down there. The government imposes custom duties and that’s what makes the overall prices of the imported goods much higher, so as a result of that, of course, customers would like to buy cheaper local goods, right? And that’s the way it is.
3. Keeping Eyes on What Comes In
The other advantage of customs duties is that they aid in controlling and monitoring the quantity and kind of products that enter the country and want to know why that’s so important. Well, this is kinda important because it will prevent foreign goods that could damage local companies from coming onto the market. Also, restricting the number of goods makes sure that there is no entry of harmful or substandard products, which is good for the consumers and also sets the country up for long-term standard market trends.
4. Good For Local Production
Customs duties are set such that they make the prices for imported goods high which motivates local consumers to switch to domestic goods instead of foreign goods, which we already talked about, right? Local production thus fulfills the need for the domestic market and the dependency on foreign goods is minimized. This also provides an opportunity for entry and growth in the local market. Through the development of local industries, the contribution to the overall growth of the country is also achieved and that’s one of the best bits about it.
5. Creating More And More Jobs
Protecting and promoting local businesses by imposing custom duties results in the growth and development of these industries leading to the creation of new jobs, that’s for sure. And without a single doubt, this is particularly important in countries faced with the challenge of unemployment at present, you know?
6. Kind Of A Tool for Economic Strategy
Customs duties are one of the instruments that a government can use to achieve the general goals of the economy. As a case in point, the government may impose relatively high duties on certain goods in order to protect key sectors such as agriculture or manufacturing. Hence, not only can the government assist industries that are crucial for the economic growth and prosperity of the nation in the long run but it can also preserve resources through such sectors.
Demerits of Custom Duty
1. Higher Prices for Everyone
Custom duties can give rise to one of the most crucial challenges for customers, which is the price increase of imported goods, you know? That’s because custom duty is just another tax that the product maker or seller must bear, and of course, they’d recover those extra costs from the customers and that’s how customers pay more for these imported products or items. Purchasing power, in turn, will be affected along with the overall level of consumer spending which possibly goes down, you know?
2. Opening the Door to Smuggling
See, because there are higher customer duties imposed on many products or items, there is a much higher chance of people smuggling such products to avoid paying for customs duty and that’s kinda a big negative because it leads people to smuggle things that are illegal. But what’s so wrong about this? Well, first of all, the government loses revenue as a result, and law-abiding businesses that comply with the regulations are also adversely affected. And it could be that the item people are smuggling isn’t up to the mark and risky to use for the customers, so yes, it’s kinda likely putting the safety of the general public at risk, but that’s mostly in rare cases.
3. Throwing Up Trade Barriers
Custom duties can act as a stumbling block to the ideal of completely free trade between countries, and how’s that? Such trade disputes may further hurt diplomatic relations and engender mistrust in international cooperation in other important areas. Trade restrictions may also mess with the supply of products on the market, thus harming consumer choice, and may be a widespread phenomenon due to the fact that the consumer is not supplied with the variety of goods they can enjoy.
4. Pretty Unjust Playing Field
With custom duties in place, a nation is pretty much secluding its local market from the competition from the other nation, and that can be both good as well as bad. Sure, it means that these foreign players must manufacture locally, but still, by making it harder or costlier for them to import goods from other nations, the government is likely decreasing the competition in the market, which in itself has many downsides like less innovation, poor quality production, and whatnot.
Conclusion
That’s pretty much it. With these points right in front of you, you can decide on your own whether custom duty is good or bad. Alright, we’ll leave you with that, and see you in the next one.