What is a Sliding Scale Tariff? Definition and Calculation Method

A sliding-scale tariff, also known as a flexible tariff, is a type of import duty that sets different tariff rates for the same product in the import tariff schedule based on market price levels. Products with a higher market price are taxed at a lower rate or are exempt, while those with a lower price are taxed at a higher rate. The purpose of this tariff is to ensure that the post-tax price of the imported product remains at a predetermined price standard, regardless of its price, in order to stabilize the market price of that product within the importing country.

The sliding-scale tariff first appeared in the British Corn Laws during the mercantilist era. The British Corn Law of 1670 stipulated that wheat would be taxed 8 shillings when the price per quarter was 53 shillings and 4 pence, and taxed 16 shillings when the price per quarter fell below 53 shillings and 4 pence. This kept wheat prices in the British market relatively high, protecting the grain production of feudal landowners. The implementation of the Corn Laws sparked a struggle between the bourgeoisie and the feudal landlord class and was eventually repealed in 1849. Subsequently, a few countries have used this tariff. Japan applied a sliding-scale tariff to certain non-ferrous metals in its 1978–1979 tariff schedule. China has never used a sliding-scale tariff.

A sliding-scale tariff is a type of tariff rate where the rate moves inversely to the price of the imported product. That is, the higher the price, the lower the rate, and the rate is a proportional one. Therefore, under a sliding-scale tariff system, the method for calculating import duty payable is the same as the ad valorem duty calculation method. The formula is as follows:

Import duty payable = T1, 2 × P × Exchange rate

(1) Calculation formula

Calculating the tariff rate:

Effective January 1, 2007, for a certain quantity of additional out-of-quota cotton imports (HS code 52010000), a sliding duty ranging from 6% to 40% applies. When the duty-paid value of the additional out-of-quota imported cotton is more than or equal to RMB 11.397/kg, the provisional preferential tariff rate is 6%. When the duty-paid value is less than RMB 11.397/kg, the provisional preferential tariff rate is calculated according to the following formula:

Ri = INT[(Pt/Pi × E + a × Pi × E – 1) × 1000 + 0.5] / 1000 (Ri ≤ 40%)

Where: Ri — Provisional tariff rate. If the calculated Ri value exceeds 40%, the rate is set at 40%.

E— USD exchange rate

Pi— Duty-paid Value (USD), CIF price, unit: USD/kg

Pt— Constant, RMB 8.8/kg

a— Constant, 2.526%

INT— Integer function (digits after the decimal point are discarded)

Formula for tax payable: Import duty amount payable = Duty-paid value × Tariff rate

(2) Calculation procedure

① Determine the tariff classification according to classification principles and classify the dutiable goods under the correct tariff heading.

② Determine the tariff rate applicable to the dutiable goods based on the rules of origin and principles of rate application.

③ Determine the duty-paid value of the dutiable goods according to methods and regulations for assessing duty-paid value.

④ Calculate the tariff rate based on the tariff rate calculation formula.

⑤ Convert foreign currency into RMB based on the principles for exchange rate application.

⑥ Correctly calculate the tax amount payable according to the calculation formula.

(3) Calculation example

A domestic company purchases 1 ton of additional out-of-quota uncombed cotton of US origin. The transaction price is CIF a certain port USD 900.00/ton. The company has submitted to the customs the "Certificate for Tariff Quota Additional Out-of-Outer Preferential Tariff Rate Imported Cotton" issued by an institution authorized by the National Development and Reform Commission. The foreign exchange conversion rate of the Bank of China is known to be 1 USD = RMB 7.71.

Calculation method:

Determine tariff classification: Uncombed cotton is classified under HS tariff heading 5201.0000.08.

Determine tariff rate: The duty-paid value is assessed as 900 × 7.71 ÷ 1000 = RMB 6.939/kg. Compare this value with RMB 11.397/kg. Since 6.939 RMB/kg 11.397 RMB/kg, and the country of origin of the imported goods qualifies for MFN tariff. The duty for this shipment is calculated based on the provisions when the duty-paid value of additional out-of-quota imported cotton is less than RMB 11.397/kg, i.e., "when the calculated tariff rate is less than 40%, the duty is levied at the calculated rate; if the calculated rate is greater than 40%, it is calculated at the 40% rate." and the formula for provisional import tariff rate (sliding duty rate). Therefore, calculate the provisional penalty rate for this shipment.

Provisional duty rate for this cotton lot = INT[(8.8/0.9×7.71+2.526%×0.9×7.71-1)×1000+0.5]/1000=443/1000=44.3%

The calculated sliding duty rate is 44.3%. As 44.3% is greater than 40%, duty is calculated at the rate of 40%.

Import duty amount payable = Provisional tariff rate × Duty-paid value (USD) × Exchange rate = 900 × 7.71 × 40% = RMB 2,775.60.