ad valorem tax

Think of the customs shed at the airport where an officer looks at your new phone and says the duty is a percentage of what it cost, not a flat fee like ₦2,000 for everybody. That is ad valorem thinking. The Latin phrase simply means according to value, and once you hear that, half the confusion about taxes disappears.

In Nigeria, you meet this every time you buy a car, import goods, or pay property rates in some states. A car worth ₦3,000,000 attracts more customs duty than one worth ₦800,000, because the tax is calculated as a percentage, often around a set rate depending on the vehicle and its age, applied to the assessed value. VAT itself, at 7.5 percent, is ad valorem too, since you pay 7.5 percent of the price of the item, not a fixed sum regardless of cost.

In the United Kingdom, council tax bands work on a similar logic, though banded rather than a straight percentage, and stamp duty on property is a cleaner example, where you pay a percentage of the purchase price, and that percentage climbs as the house gets pricier.

The opposite is a specific tax, a flat charge per unit, like a fixed sum per litre of fuel regardless of the fuel's price. Ad valorem taxes move with value, so they naturally rise as prices rise, which is why they can calmly fund government revenue even during inflation without anyone changing the rate.

Once you can spot the words according to value hiding inside a tax, you stop being surprised when the bill on your imported generator or your new car is bigger than you expected, because it was always tied to what the thing is worth, not to some fixed number someone picked years ago.