Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which principle does a specific tax follow?

1. Fixed percentage on income

2. Variable tax based on income levels

3. Fixed amount per unit sold

4. Percentage based on market value

The correct answer is: Fixed amount per unit sold

A specific tax is characterized by a fixed amount that is levied per unit of a good or service sold, rather than being contingent on factors such as income levels or market value. This means that irrespective of the price increase or decrease of the unit, the tax amount remains constant for each unit sold. This principle allows for simplicity and predictability in taxation for both the taxpayer and the tax authority, as it does not require adjustments based on income or the valuation of the good or service. Thus, taxpayers can easily calculate their total tax liabilities based on the quantity sold, making compliance straightforward. In contrast, other options involve tax calculations that vary with income or market conditions, which do not align with the fixed nature of a specific tax. For example, a fixed percentage on income or variable tax based on income levels would imply fluctuations depending on the taxpayer's earnings, while a percentage based on market value would change with the valuation of assets, making them inconsistent with the fundamental concept of specific tax.