Ad Valorem Tax Analysis

Until 1767, the East India Company paid an ad valorem tax of about approximately 25% on tea that it imported into Great Britain. In addition the ad valorem, Parliament laid additional taxes on tea sold for consumption in Britain. The extremely high taxes, combined with the fact that tea imported into Holland was not taxed by the Dutch government, meant that British American's could acquire bootlegged tea at a much better rate. The biggest market for the contraband tea was England. By the 1760s the East India Company was losing 400,000 pounds per year to smugglers in Great Britain. In addition to this, Dutch tea was also smuggled into British America in vast quantities. To try to correct this seemingly treacherous problem, Parliament passed the Indemnity Act, which lowered the tax on tea in Great Britain, and refunded the East India Company of approximately 25% duty on tea that was re-exported to the colonies. To help offset this declination of government dividends, Parliament also passed the Townshend Revenue Act of 1767, which collected new taxes in the colonies. Instead of correcting the smuggling …show more content…
According to the Whigs, colonists could only be taxed by their own colonial assemblies and nothing else. Colonial boycotts culminated in the repeal of the Stamp Act. However, in the Declaratory Act of 1766, Parliament continued to insist that it had the right to legislate for the colonies "in all cases whatsoever.” When new taxes were established in the Townshend Revenue Act of 1767, Whig colonists again responded with even more boycotts against the Parliament. Merchants created a non-importation agreement and many colonists pledged to stop drinking British