International-Business-Dr-R-Chandran-E-book

Tariff Barriers
191
International Business- Dr. R. Chandran
A tariff barrier is a levy collected on goods when they enter a domestic tariff
area (DTA) through customs. Tariff refers to the duties imposed on
internationally traded commodities when they cross national boundaries and
may be in the form of heavy taxes or custom duties (operated through a price
mechanism) on imports, so as to discourage their entry into the home
country for marketing purposes.
Tariffs enhance the price of the imported goods, thereby restricting their
sales as well as their import. Governments impose tariffs only on imports
and not on exports as they are interested in export promotion. Only a few
exported items of any country are taxed.
The aim of a tariff is thus to raise the prices of imported goods in domestic
markets, reduce their demand and thereby discourage their imports.
Tariff barriers are major determinant factor to build or get away from the
business. In India, over the past ten years the prime import duty has been
reduced to 15% from 100% on many consumer durables and electrical items.
Classification of Tariffs
A) On the basis of origin and destination of the goods crossing national
boundaries
1. Export duty: An export duty is a tax levied by the country of origin, on a
commodity designated for use in other countries. The majority of
finished goods do not attract export duty. Such duties are normally
imposed on the primary products in order to conserve them for domestic
industries. In India, export duty is levied on oilseeds, coffee and onions.
2. Import duty: An import duty is a tax imposed on a commodity originating
in another country by the country for which the product is designated.
The purpose of heavy import duties is to earn revenue, to make imports
costly and to provide protection to domestic industries. Countries impose
heavy import duties to restrict imports and thereby remove the deficit in
the balance of trade and balance of payment.
3. Transit duty: A transit duty is a tax imposed on a commodity when it
crosses the national frontier between the originating country and the
country which it is cosigned to. African and Latin American nations
impose such transit duties at any point of time. Sri Lanka is another
country enjoying such benefits from Indian companies.
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