Duty Drawback 101: All You Need To Know

Duty Drawback

Importers and exporters use a duty drawback to claim monetary relief if their goods are imported into or exported out of the United States. Duty drawback is a complex process involving an incredible amount of paperwork, so it’s important to get as much information as possible before exporting your goods. This overview will cover everything you need to know about duty drawback and its benefits.

What is Duty Drawback?

Duty drawback is a mechanism under which the government refunds the duty paid on imported goods that are subsequently exported. The refund is made to exporters to compensate them for the difference between the customs duty they paid on the imported goods and the higher rate of excise or VAT they would have paid if they had produced similar goods domestically. Nevertheless, a duty drawback is not a refund of all duties paid on an import. Rather, it’s only a partial refund of duties paid on an imported article and subsequently exported substantially the same condition as when imported.

Types of Duty Drawback

Unused Merchandise Duty Drawback

Unused Merchandise Duty Drawback is a refund on import duties paid on merchandise imported into the United States and then exported without ever being used in the United States or undergoing any change in condition. The most common example of this drawback is when a company imports a product for manufacturing use but later decides to export it instead.

Manufacturing Process Drawback

Manufacturing Process Drawback is a refund on import duties paid on merchandise imported into the United States for use in a manufacturing process. It is then exported from the United States as part of an article manufactured or produced from such imported merchandise due to that manufacturing process. The most common examples are when an automobile manufacturer uses imported parts to build cars in the USA and exports them overseas or when an apparel manufacturer imports fabric to be made into clothes sent overseas.

Rejected Merchandise Drawback Program

Under the Rejected Merchandise Drawback program, the drawback may be paid on imported merchandise that has been imported into the U.S., approved by customs, but rejected by the importer, and then exported or destroyed without ever being entered into the U.S. market. The Rejected Merchandise Drawback program drawbacks certain duties paid on merchandise that has been rejected by a purchaser before entry into the U.S. market and then either destroyed or exported directly from customs custody or from a bonded warehouse – where applicable.

Unused Merchandise Drawback

This allows for duty-free importation of manufactured articles over the quantity consumed in the manufacture or production of other articles for export or consumption in the United States. The unused merchandise must be exported within three years from the date of importation and must have been manufactured in the same plant used for processing exports.

Unauthorized Drawback

This type of drawback occurs when an importer submits false information or makes false claims about his purchase to get a better refund than he should have received. This can occur if an importer does not properly classify his goods or does not declare all of his purchases at customs. It can also be if they claim fewer purchases than they made to receive an overpayment from customs when he leaves the country with those goods still in his possession.

Advantages of Duty Drawback

  • The main advantage of duty drawback is that it can help you reduce your overall cost of doing business. Duty drawback is a refund of customs duty paid on imported goods subsequently exported. It ensures that exporters are not penalized for following government trade policies, which can benefit the country’s economy.
  • It prevents companies from passing on the burden of taxes onto their customers or suppliers by increasing prices, causing inflation in the economy.
  • Exporters can use the money saved on duties to invest in new technologies and techniques that would help them become more competitive in future years.
  • Duty drawback can also help companies increase their exports by encouraging them not to rely solely on imports for production needs. Instead, they advocate people consider local alternatives when possible to avoid paying higher import duties later on down the road when they’re ready to sell them overseas again.

Bottom Line

Literally, you now have the general information on duty drawback. It is a very beneficial scheme that gives an entrepreneur all the benefits of the excise and customs duties. This scheme provides a facility for a change of title. It enables an exporter or a manufacturer to repay his debt to the nation by giving him the right to claim a refund on the exemption available in imported goods.