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An ad valorem tax is a tax that is based on the value of a product or service, rather than on the quantity or weight of the item. The term "ad valorem" is Latin for "ing to value."
The meaning of ad valorem is at value. An example for ad valorem tax is imposition of 28% GST on luxury cars. Here, if the price of a car is Rs 10 lakh, the GST amount will be Rs 2.8.
An ad valorem tax is based on the assessed value of of a product. Therefore, the amount of tax that you pay is based on how much it is worth. For example, if a good is worth £100 and the ad valorem tax is 20%, then the tax added would be £20.
The most common ad valorem tax examples include property taxes on real estate, sales tax on consumer goods, and VAT on the value added to a final product or service.
An ad valorem tax is any tax assessed based on the value of an underlying property or transaction. Real estate taxes and sales taxes are common examples.