VII. THE PRIMARY DISTRIBUTION OF INCOME ACCOUNT
C. Taxes on production and on imports (D.2)
1. Introduction
| 7.48. | Taxes are compulsory, unrequited payments, in cash or in kind, made by institutional units to government units. They are described as unrequited because the government provides nothing in return to the individual unit making the payment, although governments may use the funds raised in taxes to provide goods or services to other units, either individually or collectively, or to the community as a whole. |
| 7.49. | Taxes on production and imports consist of:
taxes on products payable on goods and services when they are produced, delivered, sold, transferred or otherwise disposed of by their producers; they include taxes and duties on imports that become payable when goods enter the economic territory by crossing the frontier or when services are delivered to resident units by non-resident units; when outputs are valued at basic prices, taxes on domestically produced products are not recorded in the accounts of the System as being payable by their producers
plus
other taxes on production, consisting mainly of taxes on the ownership or use of land, buildings or other assets used in production or on the labour employed, or compensation of employees paid.
Taxes on the personal use of vehicles, etc., by households are recorded under current taxes on income, wealth, etc. |
| 7.50. | At the level of an individual enterprise, taxes on production are recorded as being payable out of its value added. Similarly, in business accounting, taxes on production, except invoiced VAT, are usually regarded as costs of production that may be charged against sales or other receipts when calculating profits for tax or other purposes. They correspond grosso modo to "indirect taxes" as traditionally understood, indirect taxes being taxes that supposedly can be passed on, in whole or in part, to other institutional units by increasing the prices of the goods or services sold. However, it is extremely difficult, if not impossible, to determine the real incidence of different kinds of taxes, and the use of the terms "direct" and "indirect" taxes has fallen out of favour in economics and is no longer used in the System. |
The recording of taxes on production and imports in the accounts
| 7.51. | Taxes on production and imports are recorded under uses in the generation of income account and under resources in the allocation of primary income account. |
| 7.52. | In the generation of income account, taxes on imports are recorded only at the level of the total economy as they are not payable out of the values added of domestic producers. Moreover, at the level of an individual institutional unit or sector, only those taxes on products that have not been deducted from the value of the output of that unit or sector need to be recorded under uses in its generation of income account. These vary depending upon the way in which output is valued. When output is valued at basic prices, all taxes (subsidies) on products payable (receivable) on the goods or services produced as outputs are deducted from (added to) the value of that output at producers' prices. They do not, therefore, have to be recorded under uses in the generation of income account of the units or sectors concerned, being recorded only at the level of the total economy, in the same way as taxes on imports. When output is valued at producers' prices, all taxes or subsidies on products payable or receivable on outputs have to be recorded under uses in the generation of income accounts of the units or sectors concerned, except invoiced VAT or similar deductible taxes as invoiced VAT is never included in the value of output. Non-deductible VAT and similar taxes are recorded under uses only at the level of the total economy, like taxes on imports. |
| 7.53. | Other taxes or subsidies on production - i.e., taxes payable on the land, assets, labour, etc., employed in production - are not taxes payable per unit of output and cannot be deducted from the producer's price. They are recorded as being payable out of the values added of the individual producers or sectors concerned. |
| 7.54. | In the allocation of primary income account, taxes on production and imports appear under resources only for the general government sector and the total economy, apart from any such taxes payable to non-residents. |
Taxes versus fees
| 7.55. | One of the regulatory functions of governments is to forbid the ownership or use of certain goods or the pursuit of certain activities, unless specific permission is granted by issuing a licence or other certificate for which a fee is demanded. If the issue of such licences involves little or no work on the part of government, the licences being granted automatically on payment of the amounts due, it is likely that they are simply a device to raise taxes, even though the government may provide some kind of certificate, or authorization, in return. However, if the government uses the issue of licences to exercise some proper regulatory function - for example, checking the competence, or qualifications, of the person concerned, checking the efficient and safe functioning of the equipment in question, or carrying out some other form of control which it would otherwise not be obliged to do - the payments made should be treated as purchases of services from government rather than payments of taxes, unless the payments are clearly out of all proportion to the costs of providing the services. The borderline between taxes and payments of fees for services rendered is not always clear cut in practice, however. |
Links with the IMF and OECD tax classifications
| 7.56. | The coverage of taxes in the SNA coincides with that of "tax revenue" as defined in the Manual on Government Finance Statistics, 1986, or GFS, of the International Monetary Fund (IMF), and also with "taxes" as defined in the Organisation for Economic Co-operation and Development's (OECD) annual publication Revenue Statistics of OECD Member Countries, except that the SNA includes imputed taxes or subsidies resulting from the operation of official multiple exchange rates and does not classify social security contributions under the heading of taxes. Chapter IV of the GFS contains a detailed listing and classification of taxes according to the nature of the tax. This classification is also reprinted as annex IV in the Handbook of National Accounting: Public Sector Accounts(United Nations, 1988). Part II of Revenue Statistics contains an almost identical classification. |
| 7.57. | The categories of tax distinguished in the System depend on the following interaction of three factors, of which the nature of tax is only one:
(a) The nature of the tax, as specified in the GFS/OECD classification;
(b) The type of institutional unit paying the tax;
(c) The circumstances in which the tax is payable. |
| 7.58. | Thus, payments of exactly the same tax may be recorded under two different headings in the SNA. For example, payment of an excise duty may appear under "taxes on imports, except VAT and duties" or under "taxes on products, except VAT, import and export taxes", depending upon whether the excise duty is paid on an imported or on a domestically produced good. Similarly, payment of an annual tax on automobiles may be recorded under "taxes on production" or under "current taxes on income, wealth, etc.", depending upon whether the tax is paid by an enterprise or by a household. For this reason it is not possible to arrive at the SNA categories simply by regrouping the IMF/OECD classifications. However, in order to take advantage of the existence of these detailed classifications, each category of tax listed below contains a cross-reference to the corresponding IMF and OECD classifications. |
The accrual basis of recording
| 7.59. | In contrast to the GFS and similar systems that require taxes to be recorded when they are actually paid, all taxes should be recorded on an accrual basis in the SNA, i.e., when the activities, transactions or other events occur which create the liabilities to pay taxes. However, some economic activities, transactions or events, which under tax legislation ought to impose on the units concerned the obligation to pay taxes, permanently escape the attention of the tax authorities. It would be unrealistic to assume that such activities, transactions or events give rise to financial assets or liabilities in the form of payables and receivables. For this reason the amounts of taxes to be recorded in the System are determined by the amounts due for payment only when evidenced by tax assessments, declarations or other instruments such as sales invoices or customs declarations, which create liabilities in the form of clear obligations to pay on the part of taxpayers. Nevertheless, in accordance with the accrual principle, the times at which the taxes should be recorded are the times at which the tax liabilities arise. For example, a tax on the sale, transfer or use of output should be recorded when that sale, transfer or use took place, which is not necessarily the same time as that at which the tax authorities were notified, at which a tax demand was issued, at which the tax was due to be paid or the payment was actually made. |
| 7.60. | In some countries, and for some taxes, the amounts of taxes eventually paid may diverge substantially and systematically from the amounts due to be paid to the extent that not all of the latter can be effectively construed as constituting financial liabilities as these are understood within the System. In such cases, it may be preferable for analytic and policy purposes to ignore unpaid tax liabilities and confine the measurement of taxes within the System to those actually paid. Nevertheless, the taxes actually paid should still be recorded on an accrual basis at the times at which the events took place which gave rise to the liabilities. |
Interest, fines or other penalties
| 7.61. | In principle, interest charged on overdue taxes or fines, or penalties imposed for the attempted evasion of taxes, should be recorded separately and not as taxes. However, it may not be possible to separate payments of interest, fines or other penalties from the taxes to which they relate, so that they are usually grouped with taxes in practice. |
2. Taxes on products (D.21)
| 7.62. | A tax on a product is a tax that is payable per unit of some good or service. The tax may be a specific amount of money per unit of quantity of a good or service (the quantity units being measured either in terms of discrete units or continuous physical variables such as volume, weight, strength, distance, time, etc.), or it may be calculated ad valorem as a specified percentage of the price per unit or value of the goods or services transacted. A tax on a product usually becomes payable when it is produced, sold or imported, but it may also become payable in other circumstances, such as when a good is exported, leased, transferred, delivered, or used for own consumption or own capital formation. An enterprise may or may not itemize the amount of a tax on a product separately on the invoice or bill which they charge their customers. |
Value added type taxes (D.211)
| 7.63. | A value added type tax (VAT) is a tax on goods or services collected in stages by enterprises but which is ultimately charged in full to the final purchasers. It has already been described in chapter VI, paragraphs 6.213 to 6.220. It is described as a "deductible" tax because producers are not usually required to pay to the government the full amount of the tax they invoice to their customers, being permitted to deduct the amount of tax they have been invoiced on their own purchases of goods or services intended for intermediate consumption or fixed capital formation. VAT is usually calculated on the price of the good or service including any other tax on the product. VAT is also payable on imports of goods or services in addition to any import duties or other taxes on the imports. |
Taxes and duties on imports, excluding VAT (D.212)
| 7.64. | Taxes on imports consist of taxes on goods and services that become payable at the moment when those goods cross the national or customs frontiers of the economic territory or when those services are delivered by non-resident producers to resident institutional units. |
| 7.65. | Imported goods on which all the required taxes on imports have been paid when they enter the economic territory may subsequently become subject to a further tax, or taxes, as they circulate within the economy. For example, excise duties or sales taxes may become due on goods as they pass through the chain of wholesale or retail distribution, such taxes being levied on all goods at the same point, whether those goods have been produced by resident enterprises or imported. Taxes payable subsequently on goods which have been already imported are not taxes on imports, being recorded under taxes on products, excluding VAT, import and export taxes. |
Import duties (D.2121)
| 7.66. | These consist of customs duties, or other import charges, which are payable on goods of a particular type when they enter the economic territory. The duties are specified under customs tariff schedules. They may be intended as a means of raising revenue or discouraging imports in order to protect resident goods producers (GFS, 6.1; OECD, 5123). |
Taxes on imports, excluding VAT and duties (D.2122)
| 7.67. | These consist of all taxes except VAT and import duties as defined in the GFS/OECD classifications that become payable when goods enter the economic territory or services are delivered by non-residents to residents. They include the following:
(a) General sales taxes: these consist of general sales taxes (excluding VAT) that are payable on imports of goods and services when the goods enter the economic territory or the services are delivered to residents (GFS, 5.1; OECD, 5110-5113);
(b) Excise duties: excise duties are taxes levied on specific kinds of goods, typically alcoholic beverages, tobacco and fuels; they may be payable in addition to import duties when the goods enter the economic territory (GFS, 5.2; OECD, 5121);
(c) Taxes on specific services: these may be payable when non-resident enterprises provide services to resident units within the economic territory (GFS, 5.4; OECD, 5126);
(d) Profits of import monopolies: these consist of the profits transferred to governments of import marketing boards, or other public enterprises exercising a monopoly over the imports of some good or service. The justification for treating these profits as implicit taxes on products is the same as that shown in paragraph 7.69 below for fiscal monopolies (GFS, 6.3; OECD, 5127);
(e) Taxes resulting from multiple exchange rates: these consist of implicit taxes resulting from the operation of multiple exchange rates by the central bank or other official agency. These implicit taxes are not recorded in the same way as other taxes (see chapters XIV and chapter XIX, for an explanation of the treatment of multiple exchange rates in the System as a whole). |
Export taxes (D.213)
| 7.68. | Export taxes consist of taxes on goods or services that become payable when the goods leave the economic territory or when the services are delivered to non-residents. They include the following:
(a) Export duties: general or specific taxes or duties on exports (GFS, 6.2; OECD, 5124);
(b) Profits of export monopolies: these consist of the profits transferred to governments of export marketing boards, or other public enterprises exercising a monopoly over the exports of some good or service. The justification for treating these profits as implicit taxes on products is the same as that shown in paragraph 7.69 below for fiscal monopolies (GFS, 6.3; OECD, 5124);
(c) Taxes resulting from multiple exchange rates: these consist of implicit taxes on exports resulting from the operation of an official system of multiple exchange rates (see chapters XIV and XIX). |
Taxes on products, excluding VAT, import and export taxes (D.214)
| 7.69. | Taxes on products, excluding VAT, import and export taxes, consist of taxes on goods and services that become payable as a result of the production, sale, transfer, leasing or delivery of those goods or services, or as a result of their use for own consumption or own capital formation. They include the following commonly occurring taxes:
(a) General sales or turnover taxes: these include manufacturers', wholesale and retail sales taxes, purchase taxes, turnover taxes, and so on, but excluding VAT (GFS, 5.1; OECD, 5110-5113);
(b) Excise duties: these consist of taxes levied on specific kinds of goods, typically alcoholic beverages, tobacco and fuels (GFS, 5.2; OECD, 5121);
(c) Taxes on specific services: these include taxes on transportation, communications, insurance, advertising, hotels or lodging, restaurants, entertainments, gambling and lotteries, sporting events, etc. (GFS, 5.4; OECD, 5126);
(d) Taxes on financial and capital transactions: these consist of taxes payable on the purchase or sale of non-financial and financial assets including foreign exchange. They become payable when the ownership of land or other assets changes, except as a result of capital transfers (mainly inheritances and gifts) (GFS, 4.4; OECD, 4400). They are treated as taxes on the services of intermediaries;
(e) Profits of fiscal monopolies: these consist of the profits of fiscal monopolies that are transferred to government. Fiscal monopolies are public corporations, public quasi-corporations, or government-owned unincorporated enterprises that have been granted a legal monopoly over the production or distribution of a particular kind of good or service in order to raise revenue and not in order to further the interests of public economic or social policy. Such monopolies are typically engaged in the production of goods or services which may be heavily taxed in other countries, for example, alcoholic beverages, tobacco, matches, petroleum products, salt, playing cards, etc. The exercise of monopoly powers is simply an alternative way for the government to raise revenue instead of the more overt procedure of taxing the private production of such products. In such cases the sales prices of the monopolies are deemed to include implicit taxes on the products sold. While in principle only the excess of the monopoly profits over some notional "normal" profits should be treated as taxes, it is difficult to estimate this amount, and, in practice, the value of the taxes should be taken as equal to the amount of the profits actually transferred from fiscal monopolies to government (GFS, 5.3; OECD, 5122). When a public enterprise is granted monopoly powers as a matter of deliberate economic or social policy because of the special nature of the good or service or the technology of production - for example, public utilities, post offices and telecommunications, railways, etc. - it should not be treated as a fiscal monopoly. As a general rule, fiscal monopolies tend to be confined to the production of consumer goods or fuels. As the profits of a fiscal monopoly are calculated for the enterprise as a whole, it is not possible to estimate the average amount of the tax per unit of good or service sold when the enterprise has more than one good or service as output without introducing an assumption about the rates of tax on the different products. Unless there is good reason otherwise, it should be assumed that the same ad valorem rate of tax is applied to all products, this rate being given by the ratio of the total value of the implicit taxes to the value of total sales less the total value of the implicit taxes. It is necessary to establish this rate in order to be able to calculate the basic prices of the products concerned. |
3. Other taxes on production (D.29)
| 7.70. | These consist of all taxes except taxes on products that enterprises incur as a result of engaging in production. Such taxes do not include any taxes on the profits or other income received by the enterprise and are payable irrespective of the profitability of the production. They may be payable on the land, fixed assets or labour employed in the production process or on certain activities or transactions. Other taxes on production include the following:
(a) Taxes on payroll or work force: these consist of taxes payable by enterprises assessed either as a proportion of the wages and salaries paid or as a fixed amount per person employed. They do not include compulsory social security contributions paid by employers or any taxes paid by the employees themselves out of their wages or salaries (GFS, 3; OECD, 3000);
(b) Recurrent taxes on land, buildings or other structures: these consist of taxes payable regularly, usually each year, in respect of the use or ownership of land, buildings or other structures utilized by enterprises in production, whether the enterprises own or rent such assets (GFS, 4.1; OECD, 4100);
(c) Business and professional licences: these consist of taxes paid by enterprises in order to obtain a licence to carry on a particular kind of business or profession. However, if the government carries out checks on the suitability, or safety of the business premises, on the reliability, or safety, of the equipment employed, on the professional competence of the staff employed, or on the quality or standard of goods or services produced, as a condition for granting such a licence, the payments are not unrequited and should be treated as payments for services rendered, unless the amounts charged for the licences are out of all proportion to the costs of the checks carried out by governments (GFS, 5.5.1; OECD, 5210). (See also paragraph 8.54 (c) of chapter VIII for the treatment of licences obtained by households for their own personal use.);
(d) Taxes on the use of fixed assets or other activities: these include taxes levied periodically on the use of vehicles, ships, aircraft or other machinery or equipment used by enterprises for purposes of production, whether such assets are owned or rented. These taxes are often described as licences, and are usually fixed amounts which do not depend on the actual rate of usage (GFS, 5.5.2 and 5.5.3; OECD, 5200);
(e) Stamp taxes: these consist of stamp taxes which do not fall on particular classes of transactions already identified, for example, stamps on legal documents or cheques. These are treated as taxes on the production of business or financial services. However, stamp taxes on the sale of specific products, such as alcoholic beverages or tobacco, are treated as taxes on products (GFS, 7.2; OECD, 6200);
(f) Taxes on pollution: these consist of taxes levied on the emission or discharge into the environment of noxious gases, liquids or other harmful substances. They do not include payments made for the collection and disposal of waste or noxious substances by public authorities, which constitute intermediate consumption of enterprises (GFS, 7.3; OECD, 5200);
(g) Taxes on international transactions: these consist of taxes on travel abroad, foreign remittances or similar transactions with non-residents (GFS, 6.5 and 6.6; OECD, 5127). |
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