Saturday, 5 January 2013

Duty and taxes: The risks and benefits of marking down declared value

The final barrier of online shopping: Duty and taxes
Topics covered: Exemption limits, duty calculator, marking down declared value and declaring as "gift", insurance coverage, content description, confiscation.

Whether or not your package gets hit with duty and taxes largely depends on the amount you've purchased and the country you live in, but in some countries, duty can be a hefty addition to the final cost.  In this case, it's important to check with your shopping service (SS) whether they ship packages as "gift" or "merchandise" and whether or not there is the option of marking down the declared value for customs.

In the USA, the postal limit for being duty exempt is $200.  However, in Canada, the limit much lower at $20 for merchandise or $60 for personal "gift" packages.

The actual cost of duty will vary based on the declared value and what the contents are declared as.  Higher value means more duty; very straight forward.  Declared contents is a very different story as clothing has a much higher taxable rate in either of the above mentioned countries than other categories such as toys.  In the USA, clothing is taxable at 16% while toys are exempt.  In Canada (specifically Ontario), this jumps to 18% duty + 13% HST for clothing and duty exempt + 13% HST for toys.

Duty Calculator provides a very thorough and easily comprehensible calculation of potential duties and rates.  If your country has a high duty rate for the type of goods you plan to purchase and often tax international packages, it's smart to calculate duty into the total ahead of time, even if this means lowering your maximum bid for some items and taking a pass on super low value items for which you're not willing to pay more than a few dollars.

If the chosen SS offers the option of marking down package values and sending the goods declared as "gifts", this can be an effective way to avoid being hit with duties when the package goes through customs, but keep in mind that marking down the value and declaring merchandise as a "gift" is against the law in many countries, so larger SS's or those run as a full fledged business (as opposed to a couple of people earning some extra income under the table) may be unwilling to do so.  Marking down the value also has the effect of reducing the insurable amount for the package.  Most postal systems will only allow insurance coverage to be purchased for the declared value of the package, so if you ask the SS to mark down the value, if the package gets damaged in transit, you will only be eligible to claim up to the declared value, which in the case of a marked down package, will normally cover only a fraction of what you paid.

Customer reviews of SS's come very handy when it comes to inspecting the quality of packaging and shipping various SS's offer.  A well protected and tightly sealed package shipped by EMS may be able to stand up to the risk of lowered declared value and forfeited insurance coverage.  However, if the SS has received wildly varied reviews ranging from packages full of bubble wrap to shipping in a plastic bag, it may be wise to request full insurance and take a chance on customs when it's time to ship that rare and expensive item you decided to splurge on.

This is a balancing act.  You need to weigh the benefits and consequences of reducing the chances of being charged duty and taxes with potential loss in the event of damage or sheer loss.

If duty and taxes are a sure bet in your country or area, make sure to calculate it into the equation when determining how much you want to bid on an auction, or how much you want to pay for an item before shipping.

In the event your SS refuses to mark down the value, you can use a forwarding service.  These services charge a small fee to re-label or re-package orders and mark the value and contents as their clients prefer.  Much like SS's, shop around for your forwarding service if you choose to use one and look for customer reviews to see how well each do their job.

Wording of the description can be more help than bother.  The rate of duty is dependent on the category of the items in question; however, importation limitations may see that specific items within that category are technically banned.  Some countries do not allow posting of soiled clothing (USA) while other countries do not allow wooden toys (Italy).  Although these rules are sometimes ignored, accidental mislabeling of the package due to language barriers or simple ignorance can cause the entire package to be seized and destroyed.  Make sure to understand shipping embargoes in your country and be careful of the wording if your SS or forwarding service are open to customer input on package descriptions.  "Soiled clothing" and "used clothing" can be used interchangeably if translations are sloppy, but the treatment received in customs will be quite different.

Remember that customs have the right to open your package if they suspect the labels do not reflect the contents accurately and make sure that the insides match the outside on some level.  If you are the type who like to keep the tags and receipts for your purchases, consider asking your SS to send those separately in a plain envelope.  You can save yourself a lot of hassle with customs for the cost of a lick 'n' stick postage stamp by ensuring that there are no prices inside the package that may contradict the declared value.

No amount of mark down will be effective if it doesn't convince customs (so don't ask the SS to write "toys" on the description if the package is full of dresses or ask a seller to mark the package at $40 if there's a receipt inside for $200), and providing paperwork after the fact is often more of a hassle than carefully planning out the labels beforehand.  In the worst case scenario, customs can refuse to release or confiscate the package if they request extra paperwork and you cannot provide it.  Paying additional duty and taxes may be a pain, but there is nothing worse than losing the entire package.

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