Production approach GDP (continued)
2.25 Employees may sometimes be responsible for purchasing the kinds of
goods or services listed above and be subsequently reimbursed in cash by
the employer. Such cash reimbursements must be treated as intermediate
expenditures by the employer and not as part of the employee's wages and
salaries. The provision of other kinds of goods and services, such as meals,
ordinary housing services, the services of vehicles or other durable consumer
goods used extensively away from work, transportation to and from work, etc.
should be treated as remuneration in kind.
2.26 Valuation of output, Intermediate Consumption and Value Added: More
than one set of prices may be used to value outputs and inputs depending
upon how taxes and subsidies on products, and also transport charges, are
recorded. Moreover, value added taxes, (VAT), and similar deductible taxes
may also be recorded in more than one way.
2.27 Basic and producers' prices: The SNA utilizes two kinds of output
prices, namely, basic prices and producers' prices:
(i) The basic price is the amount receivable by the producer from
the purchaser for a unit of a good or service produced as output
minus any tax payable, and plus any subsidy receivable, on that
unit as a consequence of its production or sale. It excludes any
transport charges invoiced separately by the producer;
(ii) The producer's price is the amount receivable by the producer
from the purchaser for a unit of a good or service produced as
output minus any VAT, or similar deductible tax, invoiced to the
purchaser. It excludes any transport charges invoiced
separately by the producer.
2.28 The amounts charged by non-market producers when they sell output
at prices that are not economically significant do not constitute basic or
producers' prices as just defined. Prices that are not economically significant
are not used to value the output sold at such prices: instead, such output is
valued by its costs of production. Neither the producer's nor the basic price
includes any amounts receivable in respect of VAT, or similar deductible tax,
invoiced on the output sold. The difference between the two is that to obtain
the basic price any other tax payable per unit of output is deducted from the
producer's price while any subsidy receivable per unit of output is
added. Both producers' and basic prices are actual transaction prices which
can be directly observed and recorded. When output produced for own final
consumption, or own gross fixed capital formation, is valued at basic prices, it
is valued at the estimated basic prices that would be receivable by the
producer if the output were to be sold on the market.
2.29 When output is recorded at basic prices, any tax on the product
actually payable on the output is treated as if it were paid by the purchaser
directly to the government instead of being an integral part of the price paid to
the producer. Conversely, any subsidy on the product is treated as if it were
received directly by the purchaser and not the producer. The basic price
measures the amount retained by the producer and is, therefore, the price
most relevant for the producer's decision-taking.
2.30 Gross value added at basic prices: Gross value added at basic prices
is defined as output valued at basic prices less intermediate consumption
valued at purchasers' prices. Although the outputs and inputs are valued
using different sets of prices, for brevity the value added is described by the
prices used to value the outputs. From the point of view of the producer,
purchasers' prices for inputs and basic prices for outputs represent the prices
actually paid and received. Their use leads to a measure of gross value
added which is particularly relevant for the producer.
2.31 Gross value added at producers' prices: It is defined as output valued
at producers' prices less intermediate consumption valued at purchasers'
prices. As already explained, in the absence of VAT, the total value of the
intermediate inputs consumed is the same whether they are valued at
producers' or at purchasers' prices, in which case this measure of gross value
added is the same as one which uses producers' prices to value both inputs
and outputs. It is an economically meaningful measure that is equivalent to
the traditional measure of gross value added at market prices. However, in
the presence of VAT, the producer's price excludes invoiced VAT, and it
would be inappropriate to describe this measure as being at "market" prices.
2.32 Thus in both the cases measure of gross value added and that
described in the previous section use purchasers' prices to value intermediate
inputs. The difference between the two measures is entirely attributable to
their differing treatments of taxes or subsidies on products payable on outputs
(other than invoiced VAT). By definition, the value of output at producers'
prices exceeds that at basic prices by the amount, if any, of the taxes, less
subsidies, on the output so that the two associated measures of gross value
added must differ by the same amount.
2.33 Gross value added at factor cost: It is not a concept used explicitly in
the 1993 SNA. Nevertheless, it can easily be derived from either of the
measures of gross value added presented above by subtracting the value of
any taxes, less subsidies, on production payable out of gross value added as
defined. For example, the only taxes on production remaining to be paid out
of gross value added at basic prices consist of "other taxes on
production". These consist mostly of current taxes (or subsidies) on the
labour or capital employed in the enterprise, such as payroll taxes or current
taxes on vehicles or buildings. Gross value added at factor cost can,
therefore, be derived from gross value added at basic prices by subtracting
"other taxes, less subsidies, on production".
2.34 The conceptual difficulty with gross value added at factor cost is that
there is no observable vector of prices such that gross value added at factor
cost is obtained directly by multiplying the price vector by the vector of
quantities of inputs and outputs that defines the production process. By
definition, "other taxes or subsidies on production" are not taxes or subsidies
on products that can be eliminated from the input and output prices. Thus,
despite its traditional name, gross value added at factor cost is not strictly a
measure of value added.
2.35 Gross value added at factor cost is essentially a measure of income
and not output. It represents the amount remaining for distribution out of
gross value added, however defined, after the payment of all taxes on
production and the receipt of all subsidies on production. It makes no
difference which measure of gross value added is used because the
measures considered above differ only in respect of the amounts of the taxes
or subsidies on production which remain payable out of gross value added
2.36 Claims on gross value added, other than payments of taxes, less
subsidies, to government used to be described as "factor incomes". While the
concept of factor income is no longer used in the 1993 SNA, gross value
added at factor cost could be interpreted as measuring the value of the fund
out of which so-called "factor incomes" can be paid: it follows that it is equal to
the total value of the "factor" incomes generated by production.
[Reproduced from CSO Publication]
2.25 Employees may sometimes be responsible for purchasing the kinds of
goods or services listed above and be subsequently reimbursed in cash by
the employer. Such cash reimbursements must be treated as intermediate
expenditures by the employer and not as part of the employee's wages and
salaries. The provision of other kinds of goods and services, such as meals,
ordinary housing services, the services of vehicles or other durable consumer
goods used extensively away from work, transportation to and from work, etc.
should be treated as remuneration in kind.
2.26 Valuation of output, Intermediate Consumption and Value Added: More
than one set of prices may be used to value outputs and inputs depending
upon how taxes and subsidies on products, and also transport charges, are
recorded. Moreover, value added taxes, (VAT), and similar deductible taxes
may also be recorded in more than one way.
2.27 Basic and producers' prices: The SNA utilizes two kinds of output
prices, namely, basic prices and producers' prices:
(i) The basic price is the amount receivable by the producer from
the purchaser for a unit of a good or service produced as output
minus any tax payable, and plus any subsidy receivable, on that
unit as a consequence of its production or sale. It excludes any
transport charges invoiced separately by the producer;
(ii) The producer's price is the amount receivable by the producer
from the purchaser for a unit of a good or service produced as
output minus any VAT, or similar deductible tax, invoiced to the
purchaser. It excludes any transport charges invoiced
separately by the producer.
2.28 The amounts charged by non-market producers when they sell output
at prices that are not economically significant do not constitute basic or
producers' prices as just defined. Prices that are not economically significant
are not used to value the output sold at such prices: instead, such output is
valued by its costs of production. Neither the producer's nor the basic price
includes any amounts receivable in respect of VAT, or similar deductible tax,
invoiced on the output sold. The difference between the two is that to obtain
the basic price any other tax payable per unit of output is deducted from the
producer's price while any subsidy receivable per unit of output is
added. Both producers' and basic prices are actual transaction prices which
can be directly observed and recorded. When output produced for own final
consumption, or own gross fixed capital formation, is valued at basic prices, it
is valued at the estimated basic prices that would be receivable by the
producer if the output were to be sold on the market.
2.29 When output is recorded at basic prices, any tax on the product
actually payable on the output is treated as if it were paid by the purchaser
directly to the government instead of being an integral part of the price paid to
the producer. Conversely, any subsidy on the product is treated as if it were
received directly by the purchaser and not the producer. The basic price
measures the amount retained by the producer and is, therefore, the price
most relevant for the producer's decision-taking.
2.30 Gross value added at basic prices: Gross value added at basic prices
is defined as output valued at basic prices less intermediate consumption
valued at purchasers' prices. Although the outputs and inputs are valued
using different sets of prices, for brevity the value added is described by the
prices used to value the outputs. From the point of view of the producer,
purchasers' prices for inputs and basic prices for outputs represent the prices
actually paid and received. Their use leads to a measure of gross value
added which is particularly relevant for the producer.
2.31 Gross value added at producers' prices: It is defined as output valued
at producers' prices less intermediate consumption valued at purchasers'
prices. As already explained, in the absence of VAT, the total value of the
intermediate inputs consumed is the same whether they are valued at
producers' or at purchasers' prices, in which case this measure of gross value
added is the same as one which uses producers' prices to value both inputs
and outputs. It is an economically meaningful measure that is equivalent to
the traditional measure of gross value added at market prices. However, in
the presence of VAT, the producer's price excludes invoiced VAT, and it
would be inappropriate to describe this measure as being at "market" prices.
2.32 Thus in both the cases measure of gross value added and that
described in the previous section use purchasers' prices to value intermediate
inputs. The difference between the two measures is entirely attributable to
their differing treatments of taxes or subsidies on products payable on outputs
(other than invoiced VAT). By definition, the value of output at producers'
prices exceeds that at basic prices by the amount, if any, of the taxes, less
subsidies, on the output so that the two associated measures of gross value
added must differ by the same amount.
2.33 Gross value added at factor cost: It is not a concept used explicitly in
the 1993 SNA. Nevertheless, it can easily be derived from either of the
measures of gross value added presented above by subtracting the value of
any taxes, less subsidies, on production payable out of gross value added as
defined. For example, the only taxes on production remaining to be paid out
of gross value added at basic prices consist of "other taxes on
production". These consist mostly of current taxes (or subsidies) on the
labour or capital employed in the enterprise, such as payroll taxes or current
taxes on vehicles or buildings. Gross value added at factor cost can,
therefore, be derived from gross value added at basic prices by subtracting
"other taxes, less subsidies, on production".
2.34 The conceptual difficulty with gross value added at factor cost is that
there is no observable vector of prices such that gross value added at factor
cost is obtained directly by multiplying the price vector by the vector of
quantities of inputs and outputs that defines the production process. By
definition, "other taxes or subsidies on production" are not taxes or subsidies
on products that can be eliminated from the input and output prices. Thus,
despite its traditional name, gross value added at factor cost is not strictly a
measure of value added.
2.35 Gross value added at factor cost is essentially a measure of income
and not output. It represents the amount remaining for distribution out of
gross value added, however defined, after the payment of all taxes on
production and the receipt of all subsidies on production. It makes no
difference which measure of gross value added is used because the
measures considered above differ only in respect of the amounts of the taxes
or subsidies on production which remain payable out of gross value added
2.36 Claims on gross value added, other than payments of taxes, less
subsidies, to government used to be described as "factor incomes". While the
concept of factor income is no longer used in the 1993 SNA, gross value
added at factor cost could be interpreted as measuring the value of the fund
out of which so-called "factor incomes" can be paid: it follows that it is equal to
the total value of the "factor" incomes generated by production.
[Reproduced from CSO Publication]
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