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What's the difference between Tax and Duty

What's the difference between Tax and Duty

Enjian You |

Recently, we've been receiving a lot of emails from our clients asking what the additional charges for attachments are. This article will be dedicated to dissecting what each of these two charges are and how they differ.

What's the TAX?

A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization to fund public expenditure. Taxes are typically categorized into direct and indirect taxes. Here's a breakdown of the two:

  • Direct Taxes: These are levies directly imposed on an individual's or organization's income or wealth. They include income tax, wealth tax, corporate tax, and capital gains tax.

  • Indirect Taxes: These are imposed on the production or consumption of goods and services. They include Goods and Services Tax (GST), Value Added Tax (VAT), and excise duty.

In both cases, failure to pay, or evasion of or resistance to taxation, is usually punishable by law.

What's the duty?

Duty is a type of tax that is levied on goods and services that are produced within or imported into a country. This includes customs duties and excise duties. Let's break these down:

  • Customs Duties: These are taxes imposed on goods when they are transported across international borders. The goal is to protect a country’s economy, jobs, environment, etc., by controlling the flow of goods in and out of the country.

  • Excise Duties: These are taxes imposed on goods produced within a country. They are usually levied at the point of manufacture rather than at the point of sale.

Duties are mainly used to regulate trade and protect domestic industries from foreign competition.

What's the difference between Tax and Duty?

The main difference between tax and duty, is that the scope of tax is wider in comparison to duty, i.e. the latter is the subtype of the former.

Basis of Difference                        TAX                 DUTY
Types Direct (income tax, wealth tax) and indirect (VAT, GST)  Customs duty and excise duty
Purpose Primarily to generate revenue for government expenditure  To regulate trade and protect domestic industries
Imposition Imposed on individuals and businesses based on income or consumption Imposed on specific goods and services produced or imported
Levied by Can be levied by local, state, or central government Mainly levied by the central government
Impact Can affect income inequality and economic behavior Affects prices and competition in the market
Scope Wide-ranging and applicable to all eligible taxpayers Limited to certain goods and services
Calculation Based on a percentage of income or value of goods and services Typically a fixed amount per quantity or a percentage of the value
Change in Rate Subject to change during annual budget reviews Changes usually in response to trade policies or international agreements
Enforcement Collection enforced through income reporting and auditing Collection enforced through customs checks and trade regulation