A per unit tax, or specific tax, is a tax that is defined as a fixed amount for each unit of a good or service sold, such as cents per kilogram. It is thus proportional to the particular quantity of a product sold, regardless of its price. Excise taxes, for instance, fall into this tax category.
What is particular tax?
The individual income tax (or personal income tax) is a tax levied on the wages, salaries, dividends, interest, and other income a person earns throughout the year. The tax is generally imposed by the state in which the income is earned.
How do you calculate specific tax?
MANNER OF COMPUTATION:
- Specific Tax = No. of Units/other measurements x Specific Tax Rate.
- Ad Valorem Tax = No. of Units/other measurements x Selling Price of any specific value per unit x Ad Valorem Tax Rate.
How does a specific tax work?
Specific taxes are indirect taxes which have a fixed amount of tax added on to the market price of a good or service. Graphically, this will raise the supply curve vertically by the amount of the tax, and the new curve will be parallel to the original curve.
Which is an example of a specific tax?
Specific tax A specific tax is a fixed amount of tax placed on a particular good. It is also referred to as a per-unit tax, and the tax will depend on the quantity sold (not price). Examples of specific taxes
What are the disadvantages of specific taxes?
Disadvantages of specific taxes More likely to be regressive. The tax paid will be the same for different income groups. So those on low-income will pay a higher percentage of income in tax.
How are specific taxes paid in the market?
So long as the market supply has a positive slope the specific tax will be paid partly by the buyer and partly by the firm. The burden to the firm will be smaller the greater the elasticity of supply. In other words, the firms will be able to pass on to the consumer more of the specific tax, the more elastic the market supply.
How are specific taxes different from ad valorem taxes?
A specific tax does not vary with the cost of the good – like for example an ad valorem tax – which is a percentage of the price. Placing a specific tax on a good shifts the supply curve to the left. A specific tax is borne by both producers and consumers. Consumers see the price rise from P1 to P2. Producers receive P0 rather than P1.
