Many consumers and importers are confused with the current discussion on duty and surtax being imposed on goods imported or exported.
An import duty is a tax collected on imports by a country’s customs authority. It is based on the value, the classification, and origin of the goods in the tariff administered by the importing country.
Import duty has been referred to as a customs duty, a tariff, an import tax, and an import tariff. All these names apply to the same thing: duty. However surtax is different.
To make the differentiation between the two, you must first understand duty as it relates to the Country of origin and Free Trade Agreements.
How Country of Origin Determines Duty
Rates of duty can differ depending on where the goods were made and that specific country’s trade relation status with the country from where the goods are being imported. As an example, Canada has many trade agreements with other countries which would affect the tariff or duty applied to specific goods imported into Canada, such as the North American Free Trade Agreement (NAFTA).
Generally, there is a rate for a developed country and a special rate for a non-developed country.
What is a Surtax?
Surtax is an additional duty or extra duty applied to goods that are already dutiable. Surtax in Canada is imposed by an Order in Council, which sets out the amount of the surtax, the goods to which it will apply, and normally a duration.
The Canadian government provides a Notice of Intent and or a Notification of the surtax. The notification will identify the rate of the surtax, the goods which the surtax will apply, and the period that the surtax will be collected. When the period of the surtax is extended beyond the period specified in the Order in Council, the Canadian Government will issue a Notice.
Proposed Surtax Announced May 31, 2018
On May 31, 2018, the U.S. announced the imposition of surtaxes on imports of certain steel and aluminum products from Canada (at the rates of 25% and 10%, respectively).
In response, Canada issued a Notice of Intent to impose a surtax on imports of steel, aluminum, and other products from the U.S. Canada announced that the surtax will take effect July 1, 2018, and will remain in place until the U.S. eliminates its trade measures against Canada. The surtax will only apply to goods originating from the U.S.
Will NAFTA Eligible Goods Receive the Surtax?
Yes, provided they are on the list of commodities that the surtax will be applied to. This would mean NAFTA eligible goods will remain duty-free, however, they will be subject to the surtax amount.
Will Commodities Eligible for Duty Elimination be Required to Pay the Surtax?
Commodities listed in Chapters 98 and 99 of the Customs Tariff will have the surtax applied upon importation into Canada.
As you can see, many products currently receiving the benefit of duty-free importation into Canada will be subject to the surtax. As the surtax has been proposed on a wide variety of commodities, it is essential to your operations that you understand how your import costs will be affected.
You should determine if they will increase, negotiate with your vendors and seek out alternative sourcing options. Plan A is ideal, but a good Plan B can help you stay ahead of surtax.
- *If your imported goods are on the proposed list of commodities that may be subject to surtax come July 1st
- *Alternative options for materials sourcing (alternative countries where you may take advantage of preferential duty rates or Free Trade Agreements)
- Freight rates from your alternative origins
*Charges may apply.