Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which type of tax directly correlates with the price of goods sold?

1. Proportional tax

2. Specific tax

3. Ad valorem tax

4. Progressive tax

The correct answer is: Ad valorem tax

The correct answer is determined by the nature of ad valorem tax. Ad valorem tax is based on the value of the goods sold, meaning that it is directly correlated with the price of those goods. As the price of the goods increases, the tax amount also increases proportionately. This makes it directly responsive to changes in pricing strategies or market valuation of the goods. In contrast, specific tax is levied per unit sold, irrespective of the price; hence, it does not directly tie to the selling price. Proportional tax applies the same tax rate across all income or value levels, without the price of goods influencing the tax amount. Progressive tax increases in rates as the taxable amount increases, usually concerning income rather than the goods sold. Therefore, the relationship between the tax and the selling price is most clearly exemplified by ad valorem tax.