Difference Between Excise Duty and Custom Duty
The main difference between Excise Duty and Customs Duty is that Excise Duty is imposed on goods and services produced domestically, primarily at the manufacturing stage, while Customs Duty is levied on imported goods at the point of entry into a country.
Two different forms of taxation include Excise Duty and Customs Duty. Excise Duty is imposed on domestic goods and services, whereas Customs Duty is levied on imported goods. Excise Duty is collected during manufacturing or production and may have regulatory objectives. Customs Duty applies at the import entry point, primarily for revenue generation and protectionism. Understanding these differences is essential for international trade and domestic production businesses.
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Table of Content
- Comparative Table: Excise Duty and Custom Duty
- What is Excise Duty?
- What are the Types of Excise Duty?
- How is Excise Duty Calculated?
- What is Custom Duty?
- What are the Types of Custom Duty?
- How is Custom Duty Calculated?
Comparative Table: Excise Duty and Custom Duty
| Aspect | Excise Duty | Customs Duty |
| Definition | Tax on the manufacture or sale of goods | Tax on the import of goods into a country |
| Scope | Domestic production and sale of goods | Imported goods entering the country |
| Point of Levy | At the manufacturing or production stage | At the point of entry (customs checkpoints) |
| Purpose | Revenue generation and regulatory control | Revenue generation and protectionism |
| Collection | By government agencies during production | By customs authorities at the point of entry |
| Calculation | It may be ad valorem, specific, or compound | Based on customs valuation and duty rates |
| Goods Affected | Domestic goods and services | Imported goods |
| Rates | Varies by type of goods and services | Varies by HSN code, origin, and agreements |
| Additional Charges | May include excise cess or other fees | May include anti-dumping, countervailing duties, or other charges |
| Compliance | Manufacturers and service providers | Importers and customs declarations |
| Exemptions/Rebates | Certain goods or services may be exempt | Certain goods may qualify for exemptions |
| Impact on Pricing | Affects the pricing of domestic goods and services | Affects the pricing of imported goods |
| International Trade | Typically, it does not affect international trade directly | May influence trade through tariff rates and protectionist measures |
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What is Excise Duty?
Excise duty is a tax levied on manufacturing, selling, or consuming specific goods and services within a country. Unlike sales tax, which consumers pay at the point of purchase, excise duty is usually paid by manufacturers or service providers. Although the cost may be passed on to consumers through higher prices. Excise duty is typically levied on goods like alcohol, tobacco, fuel and services like gambling. The government uses the revenue generated from excise duty to fund public services and infrastructure projects. Each country has its own set of rules and regulations governing excise duty, including the rate at which it is charged and the goods and services it applies to.
What are the Types of Excise Duty?
| Type of Excise Duty | Explanation | Example |
| Basic Excise Duty | Standard excise duty applied to most goods. | Excise duty on the production of smartphones. |
| Special Excise Duty | Additional duty on certain goods, often for regulatory purposes. | Special excise duty on tobacco products. |
| Additional Excise Duty | Levied on specific items, such as luxury goods. | Additional excise duty on high-end cars. |
| Education Cess on Excise Duty | Education cess added to excise duty for funding education. | Education cess added to excise duty on electronics. |
| National Calamity Contingent Duty | A duty imposed to fund disaster relief efforts. | NCCD on excise duty for the rehabilitation of disaster-affected regions. |
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How is Excise Duty Calculated?
Ad Valorem Excise Duty:
This type of duty was calculated as a percentage of the value of goods.
Formula: Ad Valorem Excise Duty = (Percentage Rate of Excise Duty/100) x Value of Goods.
Specific Excise Duty:
This type of duty was calculated per unit.
Formula: Specific Excise Duty = Rate of Excise Duty Per Unit x Number of Units.
Compound Excise Duty:
This was a combination of Ad Valorem and Specific Excise Duty.
Formula: Compound Excise Duty = Fixed Amount + ((Percentage Rate of Excise Duty/100) x Value of Goods).
What is Custom Duty?
Customs Duty, often called import duty or tariff. It is a tax imposed by a government on goods imported into a country. This duty is designed to regulate international trade, protect domestic industries, and generate revenue for the government. It is applicable at the point of entry, typically at customs checkpoints. The type of goods, their origin, and the applicable tariff rate are the basis of custom duty calculation.. Importers or individuals receiving foreign goods are responsible for paying this duty.
What are the Types of Custom Duty?
| Type of Custom Duty | Explanation | Example |
|---|---|---|
| Basic Customs Duty | The standard duty levied on imported goods based on their value. | Basic customs duty on imported electronic gadgets. |
| Additional Customs Duty (CVD) | Also known as Countervailing Duty, it aims to counter subsidies in the exporting country and is typically a percentage of the product’s value. | CVD on imported steel to offset subsidies provided by the exporting country. |
| Special Additional Duty (SAD) | Applied on certain imported goods in addition to basic customs duty. | SAD on imported luxury items like high-end watches. |
| Anti-Dumping Duty | Imposed to counter the unfair practice of selling goods below their fair market value in the exporting country. | Anti-dumping duty on imported steel to prevent price manipulation. |
| Safeguard Duty | Applied temporarily to protect domestic industries from an influx of low-priced imports. | Safeguard duty on imported agricultural products during a bumper crop year. |
| Preferential Duty | Applied based on trade agreements, offering lower rates or exemptions to certain countries. | Preferential duty rates on imports from countries with a free trade agreement. |
| Protective Duty | Levied to protect domestic industries from foreign competition, often used in emerging industries. | Protective duty on imported solar panels to encourage domestic production. |
| Education Cess on Customs Duty | An additional duty imposed to fund education initiatives. | Education cess on customs duty for imported textbooks. |
| Integrated Goods and Services Tax (IGST) | A comprehensive tax levied on imports in lieu of central excise, state VAT, and other taxes. | IGST on the import of machinery for industrial use |
How is Import Duty Calculated?
Customs Valuation
The first step in calculating import duty in India is determining the customs value of the imported goods. The basis of custom value is the transaction value, which is the price paid or payable for the goods sold for export to India. The transaction value may include additional costs such as freight, insurance, and other charges related to transporting goods to the point of import.
Classification of Goods
Imported goods are classified according to the Harmonized System of Nomenclature (HSN) code, a standardized international system for classifying products. Each HSN code corresponds to a specific type of goods and carries a corresponding duty rate.
Duty Rates
India has various duty rates, including Basic Customs Duty, Additional Customs Duty (Countervailing Duty or CVD), and Integrated Goods and Services Tax (IGST). The rates vary depending on the HSN code, the origin of the goods, and any trade agreements in place.
Also read: Difference Between GST and VAT
Calculation
The calculation of import duty in India involves applying the relevant duty rates to the customs value of the goods.
For example, if the customs value of an imported electronic device is $1,000 and the Basic Customs Duty rate is 10%, the Basic Customs Duty would be $100.
Additional Charges
In some cases, additional charges like Anti-Dumping Duty (ADD) or Safeguard Duty may apply, depending on the nature of the goods and their impact on domestic industries.
Payment and Compliance
Importers are responsible for paying the calculated import duty to Indian customs authorities. They must also comply with customs regulations, provide accurate documentation, and ensure proper classification to avoid penalties or delays.
Exemptions and Rebates
Certain goods may be eligible for exemptions or rebates from import duty based on trade agreements or government policies.
Note: India’s import duty structure is subject to change through annual budget announcements, and importers should refer to the latest notifications and guidelines issued by the Indian government for accurate and up-to-date information on import duty rates and calculations.
FAQs
What is the difference between excise duty and custom duty?
The key difference is that excise duty is imposed on goods produced domestically, while custom duty is levied on goods imported into a country.
Are excise duty and custom duty the same thing?
No, they are not the same. Excise duty applies to goods manufactured within a country, while custom duty applies to imported goods.
How are excise duty and custom duty calculated?
Excise duty is calculated based on the quantity or value of domestically produced goods. Custom duty is calculated based on the value of imported goods and their classification.
Who pays excise duty, and who pays custom duty?
Manufacturers or producers pay excise duty, while importers pay custom duty when bringing goods into a country.
What is the example of custom duty?
Custom duty is mostly applicable to goods such as alcohol, tobacco, fuel and services like gambling. If a brewery in India produces 10,000 barrels of beer, and the excise duty rate is u20b9500 per barrel, the brewery would need to pay u20b95,000,000 (5 million Indian Rupees) in excise duty to the government for its beer production.
What is the example of custom duty?
When a company imports machinery worth u20b95,00,000 from the United States. If the customs duty rate on machinery is 15%, the company would need to pay u20b975,000 as customs duty to the Indian government when the machinery enters the country.
What are the types of custom duty?
The types of custom duty include: Basic Customs Duty Additional Customs Duty (Countervailing Duty or CVD) Special Additional Duty (SAD) Anti-Dumping Duty Safeguard Duty Preferential Duty Protective Duty Education Cess on Customs Duty National Calamity Contingent Duty (NCCD) Integrated Goods and Services Tax (IGST)
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