Ad Valorem Tax is a type of tax that is levied on property according to its value. The value tax obliges persons who own certain types of property to make periodic tax payments, the amount of which is a percentage of the estimated value of the property. One of the most widespread forms of this tax is property tax, which can be levied on real estate, and sometimes on movable property.
The phrase “ad valorem” in Latin means “according to value”. Depending on how the formulated regional laws governing the taxation issues, the cost of the tax may be levied at the time of purchase of the property in the form of sales tax ( Eng. The Sales Tax ) or value added tax ( Eng. The Value Added Tax, VAT ), or may be imposed later on a quarterly or annual basis. A tax on value may also be imposed on property, imports, and in other circumstances, when property with a certain value is transferred to another owner.
The funds raised from this tax are used to support the work of the government. Many local governments and municipalities have their own value taxes, such as an additional property tax for individuals residing within the city. The tax rate may be determined by the legislature or as a result of a referendum. In this regard, for example, the sales tax rate can vary significantly from city to city, since its size depends on local authorities.
In the case of a tax on the value of real estate, automobiles, and other personal property, an independent assessment of their value is necessary to avoid disagreements regarding the amount of tax payment. As a rule, property is not revalued until it is transferred to another owner. Sometimes this plays into the hands of the owner, if, for example, the value of real estate grows, and he pays property tax based on its value recorded in the contract of sale. However, if the value of the property decreases, the tax will become a problem, so revaluation of the property may be in the interests of the owner.
The tax on value itself is quite contradictory and causes heated debate. On the one hand, for the government, these taxes are an effective tool that allows you to quickly raise the necessary funds to finance government programs. On the other hand, critics of the value tax claim that this type of tax actually “punishes” people for buying or owning valuable property. At the same time, conservatives are inclined to reduce the tax on value, while liberals often seek to increase it, arguing that it is necessary to raise funds to maintain the effective work of the government.