Question

3) Specifically outline the nature of the following tariffs and state their merits and demerits.
i) Specific tariffs.            [6 Marks]
ii) Ad valorem tariffs. [6 Marks]
iii) Compound tariffs. [6 Marks]     

Answer 1

(1) Specific Tariff

It is the fixed amount of money per physical unit or according to the measurement of the commodity imported or exported. In simple words Specific tariffs can be expressed in terms of a fixed amount of money per physical unit of the imported products.

# Advantage of Specific tariff

(a) It is quite easy to apply on imports regardless of their price.

(b) it protects domestic producers during a recession because consumer seek to purchase cheaper goods and the specific tariffs raises the price of cheap imports, discouraging consumption of foreign goods.

# Disadvantage

It can not discourage the consumption of imported goods that are relatively more expensive due to the set amount of tax amount of tax would be more negligible as the price of foreign products increase.

(2) Ad valorem tariffs

It is a type of tax whose amount is based on the value of transaction or of property. It is levied as a fixed percentage of the value of the commodity imported.

# Advantage

The changes in the tax charge varies with import price and this tends to mantian a constant degree of protection for domestic producers.

# Disadvantage

This tariff taxes are based on the value of the import which can be difficult to determine at times.

(3) Compound tariffs

A compound tariff is a combination of Specific and Ad valorem tariffs in which a set of money is charged in addition to a fixed percentage of the value of the imported good.

# Advantage

Advantage to this tariff is that the specific portion of the tax is levied on the imported raw materials embodied in manufactured goods while the Ad valorem tariffs is taxed on the manufactured good itself.

# There is no disadvantage of Compound Tariffs

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