Posted in Finance, Accounting and Economics Terms, Total Reads: 302

Definition: Surcharge

Surcharge, as the name suggests, is the additional charge or tax. This extra sum is added to the usual cost or amount paid for the good or the service. This is typically applied to an existing tax.

For example a surcharge of 10% on a tax rate of 20% will eventually raise the combined tax burden to 22%.

As surcharge may not have to be imposed by the government, in many cases it is practised unlawfully.

Surcharge is usually used to transfer an increase in cost for a business to the consumer. For example, when the jet fuel prices increase, the private airlines may add a surcharge to cover their cost.

A surcharge of 10% is levied on tax liabilities for individuals who earn a net taxable salary of more than Rs. 1 crore. In cases where the surcharge becomes more than the increase in income above Rs. 1 crore, a marginal relief may also be provided.

In context of marketing, quantity surcharge occurs when a retailer carries a product in two sizes and offers a promotion on the small size. This leads to a slight dip in the sales of the large size even though the same quantity can be purchased for a lesser price. The small size has a lower cost per unit and thus buyers prefer the small size provided the consumer can fulfil the desired quantity by purchasing multiples of small sizes.

Quantity surcharge gives rise to substitution opportunities. Large discounts may be offered during quantity surcharge periods indicating an incentive to substitute.

Quantity surcharge is the opposite of quantity discount.


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