Supply and Use Tables (SUT) Module-I: PP3.1 Training Course Material for e-Library on System of...

Supply and Use TablesSupply and Use Tables (SUT) (SUT)

Module-I: PP3.1

Training Course Material for e-Library on System of National Accounts

March 2009

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Supply and Use Tables Supply and Use Tables OutlineOutline

– Supply and Use of Goods and Services– Structure of Supply and Use Tables (SUT)– Trade Margins, VAT

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Supply and Use of Goods and Services

ProductionOutput

Intermediate consumption

Supply of goods and services

Final consumption

Gross capitalformation

Exports

Imports

Net exportsGross capital

formationFinal

consumptionValue added/GDP

-

=

= + +

-

=

+

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What Are Goods and Services?

They are output of production• Goods

– Tangible, can be stored, ownership can change,• Services

– Not tangible; Output is used up as delivered; Cannot be stored; Ownership cannot be transferred; Output results in change in goods, person or institutions

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• Goods – Goods can be transported stored and repackaged , as

such the production price may be different from purchase price by other producers or users

• Services– Services are used when produced, therefore the price at

production is same as price at use

What Are Goods and Services? (Contd.)

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What Are the Statistical Units?

Enterprise - an institutional unit engaged in production characterized by:– Natural person, legal or social entity – Can enter into contract on behalf of own – Has ownership rights of assets– Makes decisions on income, financial and other

assets– May have one or more economic activities

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What Are the Statistical Units? (Contd.)

• Kind of economic activity Unit – an enterprise or part of an enterprise which independently engages in one kind of economic activity or predominantly one kind of economic activity without restriction to the geographical area in which that activity is carried out

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What Are the Statistical Units? (Contd.)

• Establishment – an enterprise or part of enterprise which independently engages in one or predominantly one kind of economic activity – at one location or within a geographical area, – for which data are available, or can be meaningfully

compiled that allow the calculation of operating surplus

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Some Examples:

• Enterprise with one kind of activity and one establishment

Household operated activity engaged in

making rice cakes for sale

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Some Examples (Contd.)

• Enterprise with one kind of activity and several establishments

Bank with different branches(establishments) in different locations

Head office bank

TokyoTokyo branch

Kyoto branch

Osaka

branch

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• Enterprise with several kind of activities and several establishments which are vertically integrated

Region 2

Sugarcane plantation

Region 1

millingSugar

refining

Final output

Kind of activity

1.Agricultural crop

2.Manufacturing milling and sugar refining

Four establishments

E1

E2

E3 E4

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• Enterprise with several kind of activities and several establishments which are horizontally integrated

E1

E2E4

Head office

Manufacturing

E2

E3

Transport

E6

E7E5

Trading

7 establishments

3 economic activity

1 ancillary activity

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How to Classify Production Activities?

• Primary activity - production activity with highest share in output

• Secondary activity - other production activities for the market

• Ancillary activity - activity whose output is for internal use of the establishment or enterprise

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What Type of Producers?

• Market producers - produce market goods, that is, the price and output level is based on demand (price economically significant)

• Non market producers - produce non market goods, that is, price and output levels not based on demand ( price not economically significant)

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What are these Producers? (Contd.)

• Market producers - government corporations, private corporations, quasi-corporations, household unincorporated enterprises

• Non market producers - general government, non profit institutions, subsistence producer households

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Supply and Use Tables (SUT): GeneralSupply and Use Tables (SUT): General• An integrated part of SNA• Interrelationship of industries in an economy with

respect to the production and uses of their products as well as imports and exports

• Each industry listed across the top in Two tables – depicting outputs produced in the Supply table – depicting inputs that are consumed in the Use table

• A compilation tool: (a) data checking and reconciliation, and (b) gap filling

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SUT (Contd.)

• First and an important part of SNA• Can be used to derive Input-Output tables• SUT more often advocated as a compilation

tool for– data checking/reconciliation– data gaps filling

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A Simplified Supply Table

Supplies Industries Rest of the World Total

(1) (2) (3)

Products (1) Output by product and industry

Imports by products Total supply by product

Total (2) Total output by industry

Total imports Total supply

Structure of supply and use tables

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Structure of supply and use tablesA Simplified Use Table

Uses Industries Rest of the World

Final Consumption

Gross Capital Formation

Total

(1) (2) (3) (4) (5)

Products (1) Intermediate consumption by product and by industry

Exports by product

Final consumption expenditure by product

Gross capital formation by product

Total use by product

Components of value added

(2) Value added by component and by industry

Total (3) Total inputs by industry

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SUT (Contd.)

• Two identities hold– the identity by industry

output by industry = input by industry– the identity by product

total supply by product = total use by product

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SUT (Simple numerical Example for illustration)

• Farmer produces wheat 1000• Imports seed 600• Miller produces flour 1800• Uses wheat 1000• The miller sells flour to exports 500

– and to a retailer 1300• Retailer sells flour to households 1600• Sales tax on sales to household 100• Purchases for resale 1300

retail margin 200• Intermediate consumption 0

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Goods and services accountResources Uses

Output: Intermediate consumption

Wheat 1000 Seed 600

Flour 1800 Wheat 1000

Retail margin 200

Imports of goods and services Household consumption expenditure

Seed 600 Flour 1600

Product tax 100 Exports of goods and services

Flour 500

Total supply 3700 total use 3700

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Uses Resources

Intermediate consumption

Output

Seed 600 Wheat 1000

Wheat 1000 Flour 1800

Retail margin 200

Product tax 100

GDP 1500

Total 3100 Total 3100

Production Account

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Output at basic prices Adjustments

Product Farmer Miller Retailer Total Domestic

Imports Salestax

Trade margin

TotalSupply(purch)

Wheat 1000 1000 1000

Flour 1800 1800 100 200 2100

Retail trade

200 200 -200 -

Seed - 600 600

Totals 1000 1800 200 3000 600 100 - 3700

Supply Table

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Intermediate Usage Final Use

Product Farmer Miller Retailer Total Households Exports TotalUse

Wheat 1000 1000 1000

Flour - 1600 500 2100

Retail trade

- -

Seed 600 600 600

Totals 600 1000 1600 1600 500 3700

Use Table (Purchasers Prices)

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Valuation of transactions in SUT• Basic concepts and interrelationships

– Basic prices, – Producers’ prices, – Purchasers’ prices

• Valuation of product flows– Output– Use of goods and services– Exports and imports

• Trade and transport margins• Taxes and subsidies on products

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Equality of Supply and Use

Supply at basic prices +Taxes less subsidies on products

+Trade and transport margins= Supply at purchasers’ prices= Use at purchasers’ prices

Transition

Supply table: from basic prices to purchasers’ pricesUse table: from purchasers’ prices to basic prices

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Trade Margins

• A trade margin (wholesale or retail trade) applies only when there is a distribution service provided by the trader through buying and reselling a product

• A trade margin does not apply to direct sales by a producer, even when the sales are to households

• Trade margin is defined as the difference between the selling price of the good for resale and the price that would have to be paid by the distributor to replace the good at the time it is sold

• The trade margin is the output of the distributor• As with other producers, value added is obtained by

subtracting intermediate consumption

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Trade Margins (Contd.)

• Broadly, the trade margin is calculated as:Sales

less purchases of goods for resale

plus change in inventories for resale• Note: purchases of goods for resale should exclude any

transport charges invoiced separately to the distributor; such transport charges are to be shown as intermediate consumption of the distributor

• The trade margin is part of the difference between the basic price of a good and its purchaser’s price

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Value Added Taxes (VAT)

• General Definition:A tax on goods and/or services collected in stages by enterprises and ultimately charged in full to the final purchasers. The tax rates may vary from products to products

• Invoiced VAT:The VAT payable on the sales of a product by a producer/trader; it is (often) shown separately on the invoice which the seller presents to the purchaser

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VAT (Contd.)

• Deductible VAT: The VAT payable on purchases of goods and services

intended for intermediate consumption, gross fixed capital formation or for resale which a producer/trader is permitted to deduct from his own VAT liability to the government in respect of VAT invoiced to its customers

• Non-deductible VAT:VAT payable by a purchasing producer/trader which is not deductible from his own VAT liability, if any (e.g. VAT on certain special category items such as restaurant services and alcohol)

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VAT (Contd.)

• Incoming VAT:VAT paid by a producer/trader on purchases of goods and services intended for intermediate consumption, gross fixed capital formation or for resale

• Outgoing VAT:VAT collected by a producer/trader on its sales of goods and services

• Net VAT accrued:Outgoing VAT less deductible incoming VAT

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VAT (Contd.)

•VAT exemption:–Production of some services. No VAT on the products, produced. Incoming VAT not refundable–Small producers irrespectively of type of products they produce. No VAT on the products produced even if VAT normally is levied on these products. Incoming VAT not refundable

•Zero ratedZero VAT rate on certain transactions (e.g.

exports)Deductible incoming VAT refundable

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Example: 20 percent Value added TaxVAT VAT

PCProducer

=>1000 + 200 => RetailStore

1900 + 380 =2280=> House-holds

Passing over of VAT to the governmentThe PC producer 200The retail store 380 - 200 = 180Total VAT accrued on this set of transactions: 380 Output of computers at basic prices 1000

+ taxes less subsidies on products other than VAT 0

= Output of computers at producers' prices excl. VAT 1000

+ Trade margin 900

+ Total VAT 380

= Purchasers' prices including VAT 2280

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Example: Deductible VAT

The retail storeReceipts

Total sales 2280of which VAT 380

ExpendituresGoods for resale 1200

of which VAT 200Intermediate consumption 120

of which VAT 20VAT passed over to the government:

Outgoing VAT less incoming VAT 380-200-20= 160

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Example: Deductible VAT....... The retail store

The production account

Uses Resources

Intermediate consumption, purchasers’ prices (net of deductible incoming VAT)

100 Output basic prices 900

Gross Value added 800

Accrued VAT trade 0.2*800 = 160

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Example: Zero rated VAT....... The PC producer

Incomes

Sales to the retail trade store 1200

of which VAT 200

Export 4000

of which VAT (zero rated) 0

Expenditures

Intermediate consumption of goods and services 3600

of which:

Deductible VAT 500

Non-deductible VAT 100

VAT passed over to the government:

Outgoing VAT less incoming deductible VAT 200-500 = -300

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Example: Zero rated VAT....... The PC producer

The production accountUses Resources




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Example: A producer exempted from VAT

Incomes

Sales/output 700of which VAT 0

Expenditures

Intermediate consumption of goods and services 550of which:

VAT (normally deductible) 40VAT (always non-deductible) 10

VAT passed over to the government: 0

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Example: A producer exempted from VATVAT passed over to the government

The production accountUses Resource




VAT refunded 0

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Treatment of Imports

• Consistent with the Balance of Payments Manual in valuing imports of goods in total on a fob basis, and to show international transportation as a service

• However, in the Supply/Use framework, imports at the commodity level are valued on a cif basis (including international transportation)

• A cif/fob adjustment is made in the Supply table to accommodate these two valuation bases, and to ensure that domestic carriage of imports is not double counted

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Example of cif/fob adjustment

Assume imports cif = 1000 fob = 900International transportation = 100

Domestic carriers = 20Foreign carriers = 80

Also, assume domestic transportation to the user =30Therefore,

imports of goods = 900imports of services = 80Domestic services = 20 + 30 = 50Supply at purchasers’ prices = 1030

The cif / fob adjustment ensures that these values are reflected in the Supply table

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Supply TableDomesticSupply

cif/fob adjustment

Imports TotalSupply(basic)

Margin TotalSupply(purch)

Goods Services

Goods 1000 1000 +30 1030

Transport 50 -100 80 30 -30

cif / fob adjustment

+100 -100

Total 50 900 80 1030 - 1030

Note: the international transportation by domestic carriers is included in the purchasers’ price of the good through its impact on the cif value of imports

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Thanks

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