Excise tax

An excise tax is a tax on a particular good that is paid by the seller and is passed on to the buyer as part of the cost.[1] Excise taxes come in two forms, ad valorem tax[2] and specific tax.[3][4]

Ad Valorem Tax

Ad valorem is latin for "according to value" meaning that the tax is levied as a percentage of the value of the good.[5] For example, an ad valorem tax levied on a litre of gasoline would increase the price paid by the consumer. If the price of a litre of gasoline is $0.80 before the tax and the tax levied is 10% then the price paid by the consumer will be $0.88. An ad valorem tax levied on a good or service is also known as a sales tax.

Specific Tax

Unlike an ad valorem tax, a specific tax (or per unit tax) is a tax paid per unit of a good sold.[6] For example, a specific excise tax on bags of charcoal is used for cooking of $3.50 the tax would be the same regardless of the size of bag. The size of a specific tax stays the same when applied to the final price, if the price of a 5 kg bag of charcoal is $10.00 and a 10 kg bag is $20.00, with the tax applied the prices would be $13.50 and $23.50 respectively.

References

  1. "Routledge Dictionary of Economics", entry excise duty, published Routledge Press, 2013. Edited by Donald Rutherford Online version accessed [August 17th, 2017].
  2. "Routledge Dictionary of Economics", ad valorem, published Routledge Press, 2013. Edited by Donald Rutherford Online version accessed [August 17th, 2017].
  3. "Routledge Dictionary of Economics", entry:specific tax, published Routledge Press, 2013. Edited by Donald Rutherford Online version accessed [August 17th, 2017].
  4. A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. New York: Worth Publishers, 2013, pp. 90.
  5. J.Black, N. Hashimzade, and G. Myles. (2009) "Ad Valorem." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-40?rskey=yRb7xT&result=1 , 2009 [Aug 8, 2016]
  6. J.Black, N. Hashimzade, and G. Myles. (2009) "Specific Tax." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-2924?rskey=jeSadI&result=1, 2009 [Aug 8, 2016]

Authors and Editors

Lyndon G., Celeste Pomerantz, Jason Donev
Last updated: August 29, 2017
Get Citation