Duty free does not mean tax free

The four charges on almost every parcel

Customs does not charge one thing. It charges four, and only the first one is called duty.

• Duty. The tariff rate for the item, applied to its value. This is the number in the booklet, and the only one most people look at.
• Processing fee. 1% of the value, with a $10 minimum and a $1,000 maximum. It applies to free-rated goods too.
• Environmental levy. A flat amount on certain goods: $5 on a phone, laptop or television, $250 on a car.
• VAT. 10% of the landed cost, which is the value plus the freight plus the duty plus the fee plus the levy. Tax on top of tax, by design.

Watch it happen to a “duty free” laptop

Notice where the money went. Not one dollar of it is duty. The VAT alone is $132.70, and it was charged on the freight as well as the laptop. Now add the courier’s handling fee, which is its own charge and not a Customs charge, and the “free” laptop cost you around $160 more than the checkout page said.

Now a phone, where duty is only part of it

The duty rate said 10%. The real charge is 24% of the price. On most everyday items the VAT line is bigger than the duty line, which is why reading the rate alone will mislead you every time.

How to work out any item in four lines

• Duty: the item’s rate times the value. If freight is on the seller’s invoice, the value includes it.
• Fee: 1% of the value. Never less than $10, never more than $1,000.
• Levy: the flat amount for the item, if it has one. Most clothing and food has none.
• VAT: add the value, the freight, the duty, the fee and the levy, then take 10%.

Add the duty, the fee, the levy and the VAT. That is what Customs collects. Or skip the arithmetic: the estimator on our front page does these four lines for all 247 items in the guide.