Ad valorem tax


The ad valorem tax is a tax in the form of a percentage on the transaction value of the good.

This tax is applied to the value of the property, whether it is furniture or property. So it is not like other taxes in which it is applied based on a rate on the quantity of the good. This characteristic exposes it as a flexible tax, since it is in relation to the assessed value of the good.

The ad valorem tax form, in addition to being applied to the ownership of movable and immovable property, also applies to the sale of goods and services, applying at the point of sale.

It is worth mentioning that this type of tax is preferred by the administrative authorities of the different countries of the world. It is estimated that more than 90% of taxes are ad valorem.

Extension of ad valorem taxes

The ad valorem rate is widely applied in international trade. In such a way that three types of tariffs are distinguished, that is, taxes applied exclusively to imported products.

  • Ad valorem tariff.
  • Specific tariff.
  • Mixed.

The ad valorem tariff is applied to the value of the imported product once cost, freight and insurance have been included. That is, it comes to be applied to the CIF value. So, if a good has a 7% ad valorem tariff, the importation of merchandise of this type with a value of 500,000 euros would pay a tariff: 500,000 x 7% = 35,000 euros.

The specific rate is applied as a fixed amount per unit or weight to an asset. Thus, for example, shirts imported from a certain country are charged a flat rate of 0.5 euros per unit.

By combining an ad valorem tariff and a specific tariff, a mixed type of tariff is created. That is, a percentage is applied to the product that represents the ad valorem, on the one hand. And, on the other, a fixed rate that represents the specific tariff.

Example of ad valorem tax

This means that if a product has an ad valorem tariff of 5% and also has a specific tax of 16 euros per ton. We will have that, for an import of 2 tons with a value of 700.00 euros, customs taxes would be paid; 700,000 x 5% = 35,000 ad valorem tariff. Specific tariff would be; 2 x 16 = 32. Therefore, a total tariff tax of 35,032 euros would be paid.

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