CA Foundation · Business Economics · International Trade
In India, a 10% ad valorem import tariff is imposed on a machine whose landed price (before duty) is ₹8,00,000. A domestic buyer, Mehta Engineering, pays what total price including the tariff, assuming the full tariff is passed on to the buyer?
Mehta Engineering pays ₹8,80,000. An ad valorem tariff is a percentage of value, so 10% of ₹8,00,000 is ₹80,000. Adding this duty to the pre-duty landed price gives the total cost to the domestic buyer when the tariff is fully passed on.
- A₹8,10,000
- B₹8,80,000Correct
- C₹7,20,000
- D₹9,60,000
Explanation
Ad valorem tariff = 10% of ₹8,00,000 = ₹80,000. Total price = ₹8,00,000 + ₹80,000 = ₹8,80,000. ₹8,10,000 wrongly adds only 10 thousand, and ₹7,20,000 subtracts the tariff instead of adding it.
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