What do we call an indirect tax where a percentage is added to the selling price of each unit?

An indirect tax where a percentage is added to the selling price of each unit is referred to as an ad valorem tax. This type of tax is calculated based on the value of the good or service being sold, which means that as the price of the item increases, the amount of tax paid also increases proportionally. This contrasts with specific taxes, which impose a fixed amount per unit sold, regardless of the price.

The advantage of an ad valorem tax is that it generates revenue that scales with the market price of goods. It is commonly used in various forms of taxation, such as sales tax or value-added tax (VAT), where it can help ensure that the tax burden is distributed according to the value of what is being purchased.

Understanding the nature of an ad valorem tax provides insights into how taxation influences consumer behavior, pricing strategy, and government revenue generation.