- Net Indirect Taxes: It is the difference between indirect taxes paid to the government by the residents and subsidies given by the government to the residents.
Net Indirect Taxes = Indirect Taxes – Subsidies
Indirect Tax: It is a compulsory charge levied by the government on the production and sale of goods and services. Eg – GST, Excise Duty etc.
Subsidy: Subsidy is a transfer of money from the government to an entity. It is aimed at lowering the price of the target product.
- Market Price: Market price is the price at which a product is sold in the market. It also includes the indirect taxes imposed by the government and the subsidies provided by the government.
- Factor Cost: It is the total cost of all the factors of production used in producing a good or service. It excludes the effect of Net Indirect Taxes from the Market Price.
| Factor Cost = Market Price – Net Indirect Taxes |
Note: While calculating factor cost, indirect taxes are accounted for and not the direct taxes since direct taxes are imposed on income which is accounted for while calculating personal disposable income and not national income.
- Basic Price: The Basic Price is the amount of money received and kept by the producer for producing goods and services for consumption. It is expressed as:
| Basic Price = Factor Cost + Net Production Taxes (or Production Taxes – Production Subsidies). |
| Market Price = Basic Price + Net Product Taxes (or Product Taxes – Product Subsidies) |
-
- Production Taxes: These are taxes, such as local authority holding taxes, rent taxes etc which are paid irrespective of the quantity of goods or services produced.
- Product Taxes: Product taxes, like GST, are calculated based on the quantity of goods or services sold.
- Depreciation: It is also known as consumption of fixed capital. It is the value which is lost due to normal wear and tear of the fixed assets. Depreciation is basically the yearly reduction in the value of capital goods.
Note: Abnormal losses of fixed assets like damage to building due to fire is not included as a part of normal wear and tear (or depreciation).
While accounting for National Income, Gross Value – Depreciation = Net Value.
- Net Factor Income from Abroad (NFIA): The NFIA is calculated by subtracting the income earned by foreigners in India from the income earned by Indians in foreign countries.
NFIA = Income earned by Indians in foreign countries – Income earned by foreigners in India.
While accounting for National Income, Domestic Product + NFIA = National Product.
Spread the Word