3 Main Classification of Tariffs | Managerial Economics

The following points highlight the three main classification of tariffs.

The classification is: 1. As far as the Purpose of Taxes is Concerned 2. On the basis of method how Tariffs are Computed 3. Other Tariffs.

Tariff Classification # 1. As far as the Purpose of Taxes is Concerned:

Tariffs may be classified into two categories:

(a) Revenue tariff, and

(b) Protective tariff.

Revenue Tariffs:

Revenue tariffs are basically intended to raise the Government revenue without intending to protect any industry of the county. It is levied at a fairly low rate and does not obstruct the free flow of imports.

Protective Tariffs:

Protective tariffs on the other hand aim at protecting the domestic industries and are generally levied at a very high rate and therefore, obstruct the free flow of imports. Its main purpose is not to increase revenue but to provide a safeguard to the domestic industries against foreign competitions in the local market. Tariffs sometimes are levied to discriminate between countries e.g., tariffs are imposed on certain goods having certain specifications which are imported from a particular country.

Tariff Classification # 2. On the basis of method how Tariffs are Computed:

Tariff may be put into two categories:

(a) Specific tariffs and

(b) Ad Valorem tariffs.

(a) Specific duties or tariffs:

Specific tariff are imposed on the basis of her unit of any identifiable characteristics of merchandise such as per unit of weight, volume, length or any other unit of quality of goods. The duty schedules so specified must specify the rate of duty as well as the determining factor such as weight number etc. and the basis of arriving at determining factor such as gross weight, net weight or fare weight etc.

(b) Ad Valorem tariffs:

Ad Valorem tariffs are based on the value of imports and are charged in the form of a specific percentage of the value of goods. The schedule should specify how the value of the imported goods would be arrived at.

Tariff Classification # 3. Other Tariffs:

In order to protect the domestic industries against competition some other tariffs are also imposed.

Following two are important:

(a) Anti-dumping duty:

Dumping is an attempt to sell goods in foreign market at a very low price, even lower than cost. This will adversely affect the domestic industries. The Government of the importing country will impose customs duty on such goods at a very high rate is known as ‘anti-dumping duties’, such duties are charged in addition to the normal custom’s duty on the product.

(b) Counteracting duties:

There are similar to the anti-dumping duties and are charged on goods imported from countries where the manufacturer-exporter is paid, directly or indirectly a subsidy as an incentive for export. The amount of duty normally does not exceed the estimated amount of subsidy.