Ad Valorem Duty |ForumIAS

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News: U.S.A recently announced a 100% Ad Valorem Duty on the import of patented pharmaceuticals and associated ingredients from 31st July 2026.

About Ad Valorem Duty

Ad valorem duty is a tax imposed depending on the monetary value of an item or property.
How it is levied: It is levied as a percentage of the assessed value of the item or property, also referred to as the fair market value. It is defined as the value of the property as objectively determined by the marketplace.
It ensures that those with more valuable property pay more in taxes, establishing a sense of equity in tax contribution.
Types of ad valorem tax: The primary types include:
- Property Tax: It is charged on real estate according to its assessed market value. Local governments commonly use this tax to support public services like schools and infrastructure.
- Sales Tax: It is imposed on the purchase of goods and services as a percentage of the selling price. The exact rate differs depending on the location.
- Customs Duties: It is levied on imported products, with the tax amount determined by the value of the goods.
- Excise Tax: It is applied to particular items such as alcohol or tobacco. It is often built into the product’s price and may be based on value or quantity.

Specific tax is a fixed amount tax based on the quantity of unit sold, irrespective of the value o the item.
How it is levied: It is levied based on the volume of the item purchased.
Example: Excise duty on cigarettes is imposed per pack instead of being calculated as a percentage of the price.
Difference between Ad Valorem Duty and Specific Tax: Ad valorem duty is calculated as a percentage of the assessed value of an item, whereas specific tax is a fixed amount charged per unit of a goods, regardless of its price