What is Ad Valorem Tax?

Ad Valorem term means that “according to value” and this can be applied to any of the tax, fee, custom duty which is charged on the percentage basis of cost of products, services or property.

Ad Valorem tax can be property tax or even duty on imported items or commodities, in concern with the property. It can be explained as a tax based on assessed value of real estate/personal property.


This tax can be explained in terms of investopedia as-


Ad Valorem Tax
Ad Valorem Tax

Consider the case of municipal property taxes, property owner’s property have their property assessed on sporadically basis by the public tax assessor, further the assessed value of that property is then used to evaluate annual tax imposed on the owner through his/her municipality. Such type of taxes are acquired by the ownership of an asset, however the transactional taxes such as sales tax that are also the part of ad valorem tax are incurred only at the time of transaction.

As, we have already learnt that property tax and sales tax are the examples of Ad Valorem tax but the other fee and duties which are charged at the international borders for the cost of commodities purchased in a foreign country are also the part of Ad Valorem tax.



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