Groningen: Expert workshop Input-Output tables

Valuation matrices in the Finnish supply and use tables.

Antti Pasanen 15-16 September 2005

Starting point for the compilation of valuation matrices

Some 93% of the domestic supply at basic prices on the diagonal of the supply table and some 7% not yet determined (secondary production).

Imports by product existed already and made about 13% of the total. So about 4% of the total supply was not yet defined.

On the use side at purchaser’s prices the best information for the final uses were: Exports, household consumption expenditure, other consumption expenditure (government, non-profit institutions) and capital formation.

Intermediate consumption was added to the use table with breakdown of industry totals to products (1995 breakdown levels).

Trade and transp.

margins

Valuation matrices

Valuation matrices

VATOther taxeson products

Subsidieson products

Customs

Use table

at

purchasers’

prices

Use table at basic prices

Imports

cif

Imports

at basic

prices Use table of domestic production at basic prices

VAT

A list of VAT –percentages by product, when full VAT is paid, is compiled on the basis of the legislation. These percentages are used in all the uses that are not included in the exceptions.

(In Finland VAT legislation only came into effect 1.6.1994, before VAT we had sales tax\turn over tax)

Main exceptions (This is a simplified version)

1. Intermediate inputs

The proportion of output for which VAT is not charged is calculated for each of the industries. This gives, by industry, the proportion of intermediate inputs on which VAT is paid.

VAT (continued...)

2. Private consumption expenditures

The purchases of tax-free products (hotel and restaurant etc.) by households is used to reduce VAT-percentage of these products in private consumption

3. Investment

The share of investment from activities not liable to charge VAT is calculated. This gives the proportion of investment expenditure on which VAT is paid.

VAT exampleIND SECTOR PRICE YEAR PROD BP VATP65 S123 CUP 1995 650001 145 065 S1221 CUP 1995 650001 2436 065 S1221 CUP 1995 650002 235,032 0,2265 S121 CUP 1995 651110 124 065 S123 CUP 1995 651210 79,52256 065 S1221 CUP 1995 651210 563,9711 065 S123 CUP 1995 652210 209,2115 065 S123 CUP 1995 652310 272,0479 066 S125 CUP 1995 660110 57,94693 066 S125 CUP 1995 660310 84,05624 066 S125 CUP 1995 660320 90,30714 066 S125 CUP 1995 660330 542,2461 066 S125 CUP 1995 660340 -4,68447 065 S123 CUP 1995 702200 11,21806 0,2265 S1221 CUP 1995 702200 59,99692 0,2266 S125 CUP 1995 702200 317,1281 0,2266 S125 CUP 1995 722020 25 0,2265 S123 CUP 1995 722020 4 0,2265 S1221 CUP 1995 722020 31 0,2265 S121 CUP 1995 722020 1 0,22

Industry totals by sector at basic prices

Charged VAT in the supply of the products

IND SECTOR PRICE YEAR BP65 S121 CP 1995 12565 S1221 CP 1995 332665 S123 CP 1995 72166 S125 CP 1995 1112

IND SECTOR PRICE YEAR BPp65 S121 CP 1995 165 S1221 CP 1995 326,02965 S123 CP 1995 15,218166 S125 CP 1995 342,128

VAT example (continued...)

PROD IND SECTOR TYPEOUT YEAR PRICE PP VATP D211P D211 VAT_SHARE151111 65 S121 P11 1995 CUP 0,07615 0,17 0,16864 0,01099 0,992151111 65 S121 P7 1995 CUP 0,0044 0,17 0,16864 0,00063 0,992151113 65 S121 P11 1995 CUP 0,08821 0,17 0,16864 0,01273 0,992151113 65 S121 P7 1995 CUP 0,0046 0,17 0,16864 0,00066 0,992…151111 66 S125 P11 1995 CUP 1,55588 0,17 0,1177 0,16384 0,69233088151111 66 S125 P7 1995 CUP 0,08984 0,17 0,1177 0,00946 0,69233088151113 66 S125 P11 1995 CUP 1,80221 0,17 0,1177 0,18978 0,69233088151113 66 S125 P7 1995 CUP 0,09406 0,17 0,1177 0,0099 0,69233088…

IND SECTOR PRICE YEAR BP BPp VAT_SHARE65 S121 CP 1995 125 1 0,99265 S1221 CP 1995 3326 326,029 0,9019865 S123 CP 1995 721 15,2181 0,9788966 S125 CP 1995 1112 342,128 0,69233

VAT example (continued...)

Calculation of the non-deductible VAT shares

Compilation of the corrected VAT percents and VAT value

Turn over tax

Calculated like other taxes on products No deduction right (all non-deductible) Is not paid for all services Is paid from goods and services included to goods

Other taxes on products and subsidies on products

The actual compilation is done by the compilation rule variable. Compilation rule depends on the available data and legislation.

For other product taxes (excluding VAT and customs) proportional shares are calculated using accumulation information from government’s financial records and legislation (which uses and products are under taxation)

Taxes on products have six compilation rules (1,4,6,7,8 and 9) Proportional shares for the subsidies can be calculated from the

payment information's which are already collected for each product separately

Subsidies on products have three compilation rules (1,6 and 9)

Compilation rules for subsidies on products and other taxes on products

Supply UseValue Value % Target

Rule Single Sum BP PP ListedListed and value ranges

1 x x (x) x2 x (x) x x3 x x x4 x x x5 x x x6 x x x7 x8 x x x9 x x x x x

Other taxes on products and subsidies on products (continued...)

Other taxes on products: Energy tax Fuel tax Oil waste tax Car and motorcycle tax Asset transfer tax Alcohol tax Tobacco tax Soft drink tax Pharmacy fee Lottery tax

Subsidies on products: Agricultural products

export subsidies Agricultural products CAP

and national subsidies Agricultural program based

subsidies Public transport subsidies Publishing Storage loss

compensations

Other taxes on products and subsidies on products (continued...)

Table 1. A part of a product tax table

on spirits (159110) the tax was roughly 592% of the basic price In this case the compilation rule is 9 which means, that the uses

where tax percentage (from basic price) is not applied are listed Supply: all denaturated spirits except all products beginning with

159 (alcohol suitable for drinking) regardless of industry and supply type

Value of the collected taxes (1348,2Me) is obtained from government’s financial records and it’s divided to alcoholic products supply with the proportions obtained from the use of the products

YEAR PROD.TYPE TAXTYPE CLASS PRODUCT CRULE PRICE TYPEOUT INDUST. EUROS PERCENT2002 T10 AJ V 1000 159 9 CP PMT 999 1348,22002 T10 AJ V 2010 159110 9 CP PMT 158 592,0302002 T10 AJ V 2010 159110 9 CP PMT 159 592,030

Customs

Collected customs are obtained directly from the board of Customs for each product separately

Customs are calculated from purchaser's prices without VAT and in the calculation we assume that EU and Non-EU imports are divided evenly

The only operation is the product classification modification

Compilation of trade and transport margins

Before compiling the trade and transport margins we needed to compare the difference of supply and use by product

In the supply table the unknown part of the supply by product needed to be scaled up (some 7% of the domestic supply and some 4% of the total supply)

at the total econony level and proportionally to the known supply by product

The remaining difference between the supply and use of a good was now an estimate for the value of trade and transport margins by good

Compilation of trade and transport margins (continued...)

Some assumptions on margins had to be made:Assumptions on trade margins giving an idea of the different

uses where each kind of trade margin could have been usedIndustry specific knowledge that of course varies by

countryWe assumed that some of the industries pay no trade margins

in their intermediate consumption and that some pay the wholesale margin for some or all products they use as intermediate inputs and some industries even pay retail margin on some specific products.

Compilation of trade and transport margins (continued...)

Other assumptions were that most of the retail margins (besides the very specific ones in intermediate consumption) are paid by households, and that the changes in retail trade inventories include a wholesale margin.

The most crucial assumption was that no transport margin is paid if there’s trade margin in the purchaser’s price value of good.

In this case it is assumed that the trade margin includes all the transportation costs.

Compilation of trade and transport margins (continued...)

This allowed us to use the differences noted above as weights first to breakdown the total value of each supply trade margin to goods and then break these values further down to different uses of these goods by using the purchaser’s price value of each individual use as the weight.

We of course obtained the transport margins from the uses where there were no trade margins.

As a final step, it had to be made sure that trade and transport margins were not greater than the (domestic) supply for these services.

Compilation of trade and transport margins (continued...)

Estimation of combined trade and transport margins by product

Distribution of trade and transport margins by user and by product

Transport margins

Road, railway, water, air and pipeline transportation information’s are collected from different transport statistics

All the transportation services don’t constitute transport margin so the procedure is a little more complicated:

separately invoiced input transports by goods are calculated the value is divided into transport services by joining traffic

statistics to the product information’s As a result proportional shares for the transport margins are

obtained

Use at basic price

With the procedures described in previous slides the preliminary valuation matrices are calculated

Valuation matrices can then be joined to the use matrix at purchaser´s prices and preliminary use tables at basic prices can be computed

The final version requires balancing (manual and RAS) of the system by product at basic prices and balancing of the margins (differences in the margins are very small at this point)