| Specific (fixed) rate |
| 1.1. Advantages |
| Use of specific rates does not create incentives for reducing the quality or variety of goods as well as for setting too low prices;It is reasonable to use it if excise taxation aims to restrict the consumption of some goods, for instance alcohol or tobacco, as specific rates are based on the quantity of the consumed product but not on its cost;Ensures steady and even increasing tax revenues to the state budget on condition rates are revised regularly |
| Ad valorem (percentage) rate |
| 2.1. Advantages |
| Ad valorem rate is neutral to changes in price level which leads to an automatic increase in nominal revenues for the state budget in case of inflation;Ad valorem rate makes it easier to achieve excise taxes progressivity for the purposes of ensuring bigger re-distribution of wealth from better-off population to the less prosperous;No need to determine the unit of product subject to taxation which, in some cases, may reduce opportunities for tax evasion |
| Disadvantages |
| Given a large variety of brands or kinds of the same product with a big price difference, tax revenues levied on cheap low-quality kinds and brands are significantly lower than those on more expensive kinds. As a result, the consumption pattern changes in favor of low-quality goods;Ad valorem rate is applied to the product's retail price which, in case of transfer pricing, may result in understatement of tax obligations by way of transferring part of the product's cost to subsequent stages, after excise tax is levied |
