What is ‘Ad Valorem’ rate of duty?
When goods are imported into a nation from another, there is usually a tariff associated with the transaction which is called import duty.
The amount of import duty that has to be paid when a good is imported can be calculated in many ways. These include the number of items being imported, the weight of the goods being imported, or the duty could be a fixed amount for each transaction.
The most common way of calculating import duty is using an "Ad Valorem" rate of duty. Ad Valorem means "according to value" in Latin. If an ad valorem rate of duty is being applied, the actual duty required to be paid is dependent on the cost of the item being imported. Importing an item which has a higher price would incur a higher import duty than importing one which has a lower cost.
For example, if the ad valorem rate of duty for toys is 20%, importing a toy worth $100 would require a payment of $20 as import duty whereas importing a toy worth $500 would require the payment of $100 as import duty.