Understanding Customs Tariff Classification in Australia

A customs tariff is a tax imposed by a country’s government on imported goods. It is also known as an import duty or a customs duty. 

Governments use tariffs for a few reasons, including: 

• Revenue: Tariffs are a source of income for the government.
• Regulation: Tariffs can be used to regulate foreign trade and policy.
• Protection: Tariffs can be used to protect domestic industry by taxing foreign products.
  

In Australia, the Australian Border Force (ABF) is responsible for regulating customs tariffs, including managing tariff classifications and the customs rates of duty, the enforcement of import tax laws and the clearance of imported goods through customs when they first arrive in the country.  It is also the official source of information for customs tariff-related inquiries.  As the frontline border law enforcement agency and customs service, the mission of the ABF is to protect Australia’s border and enable legitimate travel and trade. 

The Structure of the Australian Tariff

To determine the customs duty and tax rate that applies to a particular good or product for importation into Australia, the goods require the correct classification code as regulated under the Customs Tariff Act 1995.  These classification codes are also called tariff codes or commodity codes. 

Australia’s customs tariff is based on the Harmonized Commodity Description and Coding System (HS), an internationally standardized system for classifying goods maintained by the World Customs Organization (WCO) and designed to ensure that goods are appropriately taxed and comply with both Australian and international trade rules. 

This system is organized into 21 sections, further divided into chapters, headings, and subheadings. Each level provides more specific information about the product. The structure looks like this:

1. Section: The broadest classification, categorizing goods into major groups such as agricultural products, chemicals, or machinery.
   
   
2. Chapter: A more detailed grouping within each section, corresponding to specific product types (e.g., Chapter 1 for live animals, Chapter 87 for motor vehicles).
   
   
3. Heading: A further division within chapters to describe subcategories of goods.
   
   
4. Subheading: The most specific classification, typically consisting of 8 digits in the Australian tariff schedule.

The tariff classification in Australia follows an 8-digit coding system, with the first 6 digits corresponding to the international HS code and the last two digits representing Australian-specific codes. 

How Customs Tariff Classification Works

Customs tariff classification impacts several key elements of international trade:

Import Duties

The primary function of tariff classification is to determine the rate of duty and taxes applied to imported goods over the value of $1000 in Australia. Different products may be subject to varying rates depending on their classification. For example, a 5% duty may apply to imported textiles, while electronics could be subject to a 10% duty.  Duty is calculated based on the tariff classification for the goods and their customs value, which is usually the price you paid converted to Australian dollars. 

GST (Goods and Services Tax)

Imported goods are subject to a 10% Goods and Services Tax (GST) in Australia, calculated based on the Value of Taxable Importation (VoTi), which takes into account the customs value, any duty paid and the freight costs to bring the goods to Australia, including shipping and insurance costs. GST is applied uniformly across most goods, but tariff classification helps determine exemptions or variations. 

Quotas and Licensing

Certain products, such as agricultural commodities or textiles, may be subject to quotas or licensing requirements under Australia’s trade agreements. Proper classification ensures that these goods are correctly identified and subject to any additional restrictions or requirements.

Import Prohibitions

Specific goods, like certain food products, hazardous chemicals, or endangered species, may be prohibited from importation. Correct tariff classification ensures that these goods are identified as restricted or prohibited and comply with relevant import regulations.

Trade Agreements and Preferences

Australia has numerous Free Trade Agreements (FTAs) with countries like the United States, China, and Japan. These agreements may provide reduced tariffs or exemptions for certain products. A precise tariff classification can help businesses take advantage of these preferential treatment rates.

The Process of Tariff Classification

As a legal requirement in Australia, tariff classification is typically the responsibility of the importer, that is, importers need to self-assess the tariff classification of goods over the value of $1,000 that they are importing into Australia.  You could face penalties for providing incorrect or misleading information, so it is very important to clearly understand this process.  However customs agents and brokers can be engaged to take care of this entire process for you and free advice can also be obtained by the ABF.

Here is an overview of the steps involved:

1. Determine the Product Description: The first step in tariff classification is to accurately describe the imported goods. This involves understanding the product’s material, function, and use.
   
   
2. Consult the Australian Customs Tariff: Importers use the Australian Customs Tariff Schedule to match their product description to the correct heading and subheading. This requires a good understanding of the tariff structure and how goods are categorized.
   
   
3. Classify Using Customs Ruling: If there is ambiguity or uncertainty, importers can request a Binding Tariff Advice (BTA) from the Australian Border Force. A BTA is an official determination of the correct tariff classification for specific goods and is binding for future imports of the same goods.

4. Verify Country of Origin: It is essential to determine the origin of the goods as some products may qualify for preferential tariff rates under Australia’s trade agreements. The correct classification helps determine whether a product meets the requirements for preferential tariff treatment. 
   
   
5. Declare to Customs: Once goods are classified, the importer must declare them to the ABF when entering the country, providing accurate classification details to ensure correct duties and taxes are applied.  For all imports into Australia over $1000, Import Declaration forms are required and can be found on the ABF website import declarations page.   Don’t forget to attach other import documentation requirements to this form, including Commercial Invoice, Packing Declaration, Packing List, Bill of Lading/Airway Bill, Certificate of Origin and Insurance Documents.  These all must be lodged by the importer receiving the goods in Australia, or their chosen agent before the goods land in Australia.  For further information on this documentation, see our How to Import Goods from China page.  If you choose to lodge your Import Declaration yourself, you will be required to provide 100 points of identification.  Alternatively, your customs broker will ensure that all paperwork, including the import declaration, is correctly completed and submitted on time.
   

Payment of Duties and Taxes

Payment of all applicable duties is required before the goods can be released at the border.  If you choose to use one, your customs broker can help you understand the costs involved and ensure timely payment.  If you cannot or will not pay the import tax, the ABF will generally seize and destroy your goods.

Challenges in Customs Tariff Classification

Tariff classification can be complex, especially for products that don’t fit neatly into existing categories. Common challenges include:

• Misclassification Risk: Incorrect classification can lead to underpayment or overpayment of duties and taxes, potential fines, and delays in clearance. It is crucial for businesses to ensure their goods are classified correctly.
  
  
• Changes in Legislation: The customs tariff is updated periodically, and new products may require different classifications. Staying updated on changes is vital for businesses that deal with a range of products.
  
  
• Complex Products: Some goods, such as electronic devices or composite materials, may be difficult to classify due to their multifunctional nature. In such cases, businesses can consult experts or seek a Binding Tariff Advice from the ABF.
  
  

Understanding customs tariff classification is a vital component of international trade in Australia. By correctly classifying products, businesses ensure they meet regulatory requirements, avoid penalties, and optimize their import and export processes. While the tariff classification system can be complex, with the right knowledge and resources, businesses can navigate it effectively, benefiting from reduced costs, efficient customs clearance, and greater opportunities in international markets. For importers and exporters alike, it’s essential to remain diligent, stay informed about any regulatory changes, and seek expert advice when necessary to ensure smooth and compliant trade operations.

If you are importing goods into Australia and need assistance with Australian customs tariff classification, then a Licenced Customs Broker is the specialist that you require to ensure your goods are ‘cleared’ for entry into Australia.  Clarke Global’s team of licenced customs brokers deal directly with the relevant government, port and airport authorities to help importers by:

• Completing and submitting the correct documentation for the ABF;
  
• Calculating customs duties and taxes payable on your import;
  
• Ensuring your goods are classified correctly as required under the Customs Tariff Act 1995;
  
• Providing tariff advice for your goods and where applicable utilising Australia’s free trade agreements;
  
• Conducting customs compliance audits of your import and export operations to identify duty overpayments and process customs refund applications;

Clarke Global’s systems are electronically linked to both ABF and the Department of Agriculture, Fisheries and Forestry to instantly access duty rates, duty concessions and biosecurity requirements on behalf of our clients. This combined with our clearance expertise ensures our tariff advice and clearance service is of the highest level, minimising customs clearance and quarantine delays.

Call our team on +61 3 9854 3000 or send an email to enquiry@clarkeglobal.com.au to obtain customs tariff advice or to ensure your goods are correctly classified for import into Australia.  We advise all importers to look into the benefit of our free tariff audit services.