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Difficulty: EasyTypes and Systems of Taxation

When a government levies a fixed monetary amount of N50\text{N}50 on each physical unit of a commodity sold, regardless of its market price, what type of tax is this?

  1. A
    An ad valorem tax
  2. A specific taxAnswer
  3. C
    A progressive tax
  4. D
    A direct tax

Answer

A specific tax
A specific tax is defined as a fixed amount of tax levied per physical unit of a commodity sold (such as N50\text{N}50 per unit or per litre), irrespective of the item's unit price.

Step-by-Step Solution

1
Identify the basis on which the tax is charged in the given scenario.
The tax is charged as a fixed sum of money (N50\text{N}50) per physical unit of the commodity.
Indirect taxes on commodities can be levied either according to physical quantity or according to monetary value.
2
Determine the economic term for a per-unit tax.
A fixed charge per physical unit is classified as a specific tax.
This distinguishes it from an ad valorem tax, which is expressed as a percentage of the item's selling price.

Key Concept

Specific Tax vs. Ad Valorem Tax
Estimated Time:45s
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Topics

Types and Systems of Taxation

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