What Are Ad Valorem Tariffs?

AD valorem tariff is a terminology often found in customs and excise literature. Ad valorem tariff is one of the tariffs used in customs and excise, in addition to the specific-rate tariff and mixed tariff. As such, what exactly is an ad valorem tariff?

Definition

Referring to the OECD Glossary of Statistical Terms, an ad valorem tariff is a charge levied on imports defined in terms of a fixed percentage of value. Under the WTO Glossary Term, an ad valorem tariff is a tariff rate charged as a percentage of the price.

Quoting from the World Bank's World Integrated Trade Solution (WITS) webpage, an ad valorem tariff is the most commonly used tariff and is defined as an import duty rate calculated based on a certain percentage of the product value

In addition, referring to the IBFD International Tax Glossary, ad valorem tax in Latin means based on value. The ad valorem concept is widely applied to value-added tax (VAT), import duty and excise duty.

On the other hand under the OECD Glossary of Tax Terms, ad valorem tax is a tax on goods or property expressed as a percentage of the selling price or estimated value. This implies that ad valorem tax is also frequently applied to property tax imposed on real estate

Referring to Cornell Law School, ad valorem tax is commonly applied to real estate tax. An important characteristic of ad valorem tax is that this tax is proportional to the value of the underlying asset, unlike specific tax where the amount is fixed regardless of the value of the underlying asset.

In essence, ad valorem tariffs are stipulated tariffs or charges that are imposed based on a certain percentage of the price of goods. Referring to Article 12 of the Customs Law, the ad valorem tariff for import duty is set at a maximum of 40% of the customs value.

On the other hand, ad valorem tariffs for excise duty, one of which applies to Other Tobacco Processing Products (HPTL) or alternative tobacco which is subject to 57% of the retail selling price are regulated under Article 6 of MoF Reg. No. 146/PMK.010/2017 as amended by MoF Reg. No. 156/PMK.010/2018. (Bsi)