Ad valorem: Definition, Example and Related Terms
What is an Ad valorem ?
Ad valorem is a Latin term that means 'according to value.' It's a concept used in tax law, where certain taxes are determined based on the value of the property being taxed. Imagine you're playing a board game, and you land on a square that says, 'Pay 10% of your total money.' That's kind of like ad valorem tax - the more money or value you have, the more you pay.
Here's an interesting fact: the term 'ad valorem' is used worldwide in customs and taxation systems. It's a fair way of taxing because it considers the value of the goods or property, meaning those who own more expensive things pay more tax.
Scenario Description Importing a car If you're importing a car into a country, an ad valorem tax might be applied. The tax would be a percentage of the car's value. Owning a house Property taxes are often ad valorem taxes. If you own a house, you would pay a yearly tax based on the value of the house. Selling a painting If you sell a painting, and the country has an ad valorem tax on art sales, you would pay a tax based on the selling price of the painting.