Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which type of indirect tax is charged as a fixed sum per unit sold?

1. Ad valorem tax

2. Specific tax

3. Progressive tax

4. Proportional tax

The correct answer is: Specific tax

The specific tax is charged as a fixed sum per unit sold, making it distinct from other forms of taxation. This type of tax is applied uniformly on each unit of a product, regardless of its price or value. Therefore, if a government levies a specific tax of a certain amount on, say, cigarettes or fuel, that specific amount will be charged for every unit sold, creating predictable revenue based on sales volume. In contrast, ad valorem taxes vary depending on the value of the item being sold; they are calculated as a percentage of the sale price rather than a fixed amount per unit. Progressive taxes increase the tax rate as the taxable amount increases, often impacting higher-income earners more heavily than lower-income earners, hence not applying to a fixed sum per unit context. Proportional taxes maintain a constant rate regardless of income or sales levels, but again, they are not related to fixed sums per unit sold. Understanding these distinctions is important when analyzing tax systems and their implications for pricing and sales strategies in business.