Difference between Tax and Tariff

The great majority of people have paid some sort of tax in their life, whether it is sales taxes, income taxes, or both. But only some people have paid tariffs out of their pocket. Tax and tariff are frequently used interchangeably by those in the know. Still, the two aren't identical. Tariffs are levied on the importation of goods, whereas taxes are levied on the taxable income of individuals and businesses. People and businesses alike contribute to the government by paying taxes.

What is Tax?

Businesses, like residents, must pay taxes to support the nation's administration. This may be happening on a regional scale. It may even have a national scope. There are many different types of taxes, but they all serve the same primary purpose− to generate revenue for government services and projects like building new schools and roads, expanding Medicaid, and paying for medical care for the elderly and disabled.

The following are examples of several sorts of taxes −

  • Income tax − The federal government receives this money in the form of an income tax. The vast majority of countries have a progressive tax system, where those with higher incomes are expected to pay a larger share of their earnings than those with lower incomes.

  • Payroll tax − This contribution to the Social Security and Medicare costs must be made by each employee. An employer often withholds payroll taxes, and the resulting sum is split between the worker and the business. Independent contractors must pay into the system in the same way that companies and workers do.

  • Sales taxes − Additional taxes may be collected from consumers when they pay for services and goods. Once the proper procedures have been followed, the corporation will turn over this cash to the government. Each state and locality has its own sales tax rate.

  • Corporate taxes − Corporations are required to pay these taxes, depending on the company's taxable income. The national average and state average rates are not the same.

  • Property taxes − Property taxes are those levied against specific pieces of real estate. The property's assessed value is used to calculate the tax refund amount.

  • Tariffs − A country's tax is imposed on goods and services imported from another country. One of the main goals of tariffs is to encourage domestic consumption.

  • Estate taxes − Estate taxes are levied in compliance with the state's established exemptions.

It's essential to remember that different countries and states have vastly different tax laws. Knowing one's tax condition and duties might help taxpayers better handle their responsibilities.

What is Tariff?

The goods and services imported from other nations are subject to this type of tax. Governments impose these levies to raise revenue, strengthen their hands internationally, and protect domestic businesses. Whenever tariffs are imposed, the cost of imported products and services rises. As a result, consumers have little choice but to choose domestically produced goods and services over their imported counterparts. This has created a debate over tariffs' usefulness as a policy instrument.

Tariffs may be broken down into two main groups −

  • A Specific Tariff − This tax is levied at a certain percentage regardless of the price or value of the item being purchased. The government of one nation may levy a tax of $1,000 on each piece of machinery imported into the country.

  • Ad−valorem tariff − This duty is determined partly by the selling price of the item or service. In one scenario, you could have to fork up 10% of the equipment's total price.

Tariffs can help governments bring in more money, but they have many unintended consequences. The following are some examples −

  • Since they lessen competition in the market, they may lead domestic industries to be less innovative and efficient.

  • The cost of goods made in the area may go up.

  • They might spark new disputes or make others worse.

  • They might spark a global trade war.

Differences: Tax and Tariff

The following table highlights how taxes are different from tariffs

Characteristics Tax Tariff
Definition Taxes are the mandatory payments that citizens and corporations must make to support their respective governments. Tariffs are taxes on goods and services imported into the United States from other nations.
Nature The activities and methods used in a country to generate revenue are subject to taxation. Products that originate within the borders of the country are exempt from tariffs.
Importance To fund the government's various activities is the basic justification for levying taxes. One of the main goals of tariffs is to encourage domestic consumption.


Taxes are the mandatory payments that citizens and corporations must make to support their respective governments. However, imports of goods and services from other nations are subject to tariffs, a special tax form. Their different purposes are the main dividing line between the two.

Taxes are imposed so that governmental operations may be supported financially. On the other hand, tariffs are meant to do double duty by increasing tax revenue and stimulating domestic consumption. In contrast, tariffs are only a specialized kind of taxation.

Updated on: 29-Nov-2022

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