Archive:ESA 2010 - Distributive transactions

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4.01

Definition: distributive transactions are transactions whereby the value added generated by production is distributed to labour, capital and government, and transactions redistributing income and wealth.

A distinction is drawn between current and capital transfers, with capital transfers redistributing saving or wealth, rather than income.

Compensation of employees (D.1)

4.02

Definition: : compensation of employees (D.1) is defined as the total remuneration, in cash or in kind, payable by an employer to an employee in return for work done by the latter during an accounting period.

Compensation of employees is made up of the following components:

(a) wages and salaries (D.11):

wages and salaries in cash,
wages and salaries in kind;

(b) employers’ social contributions (D.12):

employers’ actual social contributions (D.121):
- eemployers’ actual pension contributions (D.1211),
- employers’ actual non-pension contributions (D.1212),
employers’ imputed social contributions (D.122):
- employers’ imputed pension contributions (D.1221),
- employers’ imputed non-pension contributions (D.1222).

Wages and salaries (D.11)

Wages and salaries in cash

4.03

Wages and salaries in cash include social contributions, income taxes, and other payments payable by the employee, including those withheld by the employer and paid directly to social insurance schemes, tax authorities, etc. on behalf of the employee:

Wages and salaries in cash include the following kinds of remuneration:

(a) basic wages and salaries payable at regular intervals;

(b) enhanced payments, such as payments for overtime, night work, weekend work, disagreeable or hazardous circumstances;

(c) cost of living allowances, local allowances and expatriation allowances;

(d) bonuses or other exceptional payments linked to the overall performance of the enterprise made under incentive schemes; bonuses based on productivity or profits, Christmas and New Year bonuses excluding employee social benefits (see point (c) of paragraph 4.07); '13th to 14th month' pay also known as annual supplementary pay;

(e) allowances for transport to and from work, excluding allowances or reimbursement of employees for travelling, separation, removal and entertainment expenses incurred in the course of their duties (see point (a) of paragraph 4.07);

(f) holiday pay for official holidays or annual holidays;

(g) commissions, tips, attendance and directors' fees paid to employees;

(h) payments made by employers to their employees under saving schemes;

(i) exceptional payments to employees who leave the enterprise, where those payments are not linked to a collective agreement;

(j) housing allowances paid in cash by employers to their employees.

Wages and salaries in kind

4.04

Definition: : Definition: wages and salaries in kind consist of goods and services, or other non-cash benefits, provided free of charge or at reduced prices by employers, that can be used by employees in their own time and at their own discretion, for the satisfaction of their own needs or wants or those of other members of their households.

4.05

Examples of wages and salaries in kind are:

(a) meals and drinks, including those consumed when travelling on business but excluding special meals or drinks necessitated by exceptional working conditions. Price reductions obtained in free or subsidised canteens, or obtained by luncheon vouchers, are included in wages and salaries in kind;

(b) own account and purchased housing or accommodation services of a type that can be used by all members of the household to which the employee belongs;

(c) uniforms or other forms of special clothing which employees choose to wear frequently outside of the workplace as well as at work;<

(d) the services of vehicles or other durables provided for the personal use of employees;

(e) goods and services produced as outputs from the employer's own processes of production, such as free travel for the employees of railways or airlines, free coal for miners, or free food for employees in agriculture;

(f) the provision of sports, recreation or holiday facilities for employees and their families;

(g) transportation to and from work, except when organised in the employer's time; car parking when it would otherwise have to be paid for;

(h) child care for the children of employees;

(i) payments for the benefit of employees, made by employers to works councils or similar bodies;

(j) bonus shares distributed to employees;

(k) loans to employees at reduced rates of interest. The value of this benefit is estimated as the amount the employee would have to pay if interest at market conditions were charged, less the amount of interest actually paid. The benefit is recorded in wages and salaries in the generation of income account, and the corresponding imputed payment of interest from the employee to employer is recorded in the primary distribution of income account;

(l) stock options, when an employer gives an employee the option to buy stocks or shares at a specified price at a future date (see paragraphs 4.168 to 4.178);

(m) incomes generated by non-observed activities in corporate sectors and transferred to the employees participating in such activities for their private use.

4.06

Goods and services given to employees as wages and salaries in kind are valued at basic prices when produced by the employer, and at purchasers' prices when purchased by the employer. When provided free, the whole value of the wages and salaries in kind is calculated according to the basic prices (or purchasers' prices of the employer when purchased by the employer) of the goods and services in question. This value is reduced by the amount paid by the employee when the goods and services are given at reduced prices rather than free of charge.

4.07

Wages and salaries do not include the following:

(a) expenditure by employers necessary for the employers' production process. Examples are the following:

(1) allowances or reimbursement of employees for travelling, separation, removal and entertainment expenses incurred in the course of their duties;

(2) expenditure on providing amenities at the place of work, medical examinations required because of the nature of the work and supplying working clothes which are worn for work;

(3) accommodation services at the place of work of a kind which cannot be used by the households to which the employees belong, for example cabins, dormitories, workers' hostels, and huts;

(4) special meals or drinks necessitated by exceptional working conditions;

(5) allowances paid to employees for the purchase of tools, equipment or special clothing needed for their work, or that part of their wages or salaries which, under their contracts of employment, employees are required to devote to such purchases. To the extent that employees who are required by their contract of employment to purchase tools, equipment, special clothing, etc., are not fully reimbursed, the remaining expenses they incur are deducted from the amounts they receive in wages and salaries and the employers' intermediate consumption increased accordingly.

Expenditure on goods and services that employers are obliged to provide to their employees in order for them to be able to carry out their work is treated as intermediate consumption by employers;

(b) The amounts of wages and salaries which employers pay to their employees temporarily in the case of sickness, maternity, industrial injury, disability, etc. Such payments are treated as other social insurance non-pension benefits (D.6222), with the same amounts recorded under employers' imputed non-pension social contributions (D.1222);

(c) other employment-related social insurance benefits, in the form of children's, spouses', family, education or other allowances in respect of dependants, and in the form of the provision of free medical services (other than those necessitated by the nature of the work) to employees or their families;

(d) taxes payable by the employer on the wage and salary bill — for example, a payroll tax. Such taxes payable by enterprises are assessed either as a proportion of the wages and salaries paid or as a fixed amount per person employed. They are treated as other taxes on production;

(e) payments to outworkers on piecework rates. When the income received by the outworker is a function of the value of the outputs from some process of production for which that person is responsible, however much or little work was put in, this kind of remuneration implies that the worker is self-employed.

Employers' social contributions (D.12)

4.08

Definition: : employers' social contributions are social contributions payable by employers to social security schemes or other employment-related social insurance schemes to secure social benefits for their employees.

An amount equal to the value of the social contributions incurred by employers in order to secure for their employees the entitlement to social benefits is recorded under compensation of employees. Employers' social contributions may be either actual or imputed.

Employers' actual social contributions (D.121)

4.09

Definition: : employers' actual social contributions (D.121) consist of the payments made by employers for the benefit of their employees to insurers (social security and other employment-related social insurance schemes). Such payments cover statutory, conventional, contractual and voluntary contributions in respect of insurance against social risks or needs.

Although paid directly by employers to the insurers, such employers' contributions are treated as a component of the compensation of employees. The employees are then recorded as paying the contributions to the insurers.

Employers' actual social contributions are comprised of two categories, the contributions related to pensions and the contributions for other benefits, which are recorded separately under the following headings:

(a) Employers' actual pension contributions (D.1211);

(b) Employers' actual non-pension contributions (D.1212).

Employers' actual non-pension contributions correspond to contributions related to social risks and needs other than pensions, such as sickness, maternity, industrial injury, disability, redundancy, etc. of their employees.

Employers' imputed social contributions (D.122)

4.10

Definition: : employers' imputed social contributions (D.122) represents the counterpart to other social insurance benefits (D.622) (less eventual employees' social contributions) paid directly by employers to their employees or former employees and other eligible persons without involving an insurance enterprise or autonomous pension fund, and without creating a special fund or segregated reserve for the purpose.

Employers' imputed social contributions are divided into two categories:

(a) Employers' imputed pension contributions (D.1221)

Social insurance schemes in respect of pensions are classified as defined contribution schemes or defined benefit schemes.

A defined contribution scheme is one where the benefits are determined by the contributions made to the scheme and the return from the investment of the funds. At the time of retirement, it is the employee that takes on all risks regarding benefits payable. For such schemes there are no imputed contributions unless the employer operates the scheme himself. In that case, the costs of operating the scheme are treated as an imputed contribution payable to the employee as part of compensation of employees. This amount is also recorded as final consumption expenditure by households on financial services.

A defined benefit scheme is one where benefits payable to the members are determined by the rules of the scheme, i.e. by the use of a formula to determine the payment or a minimum payment. In a typical defined benefit scheme, both employer and employee make contributions, with the employee contribution compulsory, being a percentage of current salary. The costs of meeting the quoted benefits are the responsibility of the employer. It is the employer who takes the risk for providing the benefits.

Under a defined benefit scheme, there is an imputed contribution by the employer calculated according to the following calculation: The imputed contribution by the employer is equal to the increase in benefit due to current period of employment less the sum of the employer's actual contribution, less the sum of any contribution by the employee, plus the costs of operating the scheme.

Some schemes may be expressed as non-contributory because no actual contributions are made by either the employer or employee. Nevertheless, an imputed contribution by the employer is calculated and imputed as just described.

Where pension entitlements of schemes for government employees are not recorded in the core accounts, the government employers' imputed pension contributions are to be estimated on the basis of actuarial calculations. Where the actuarial calculations cannot obtain a sufficient level of reliability, and in such cases only, two other approaches are possible to estimate government employers' imputed pension contributions as follows:

(1) on the basis of a reasonable percentage of wages and salaries paid to current employees; or

(2) as equal to the difference between current benefits payable and actual contributions payable (by both employees and government as employer).

(b) Employers' imputed non-pension contributions (D.1222)

The fact that certain social benefits are paid directly by employers, and not through the medium of social security funds or other insurers, does not prevent them from being recorded as social welfare benefits. Since the costs of such benefits form part of employers' labour costs, they are also included in the compensation of employees. Remuneration is therefore imputed for such employees equal in value to the amount of social contributions that is needed to secure the entitlements to the social benefits that they accumulate. Such amounts take into account any actual contributions made by the employer or employee and depend not only on the levels of the benefits currently payable but also on the ways in which employers' liabilities under such schemes are likely to evolve in the future as a result of factors such as expected changes in the numbers, age distribution and life expectancies of their present and previous employees. The values imputed for the contributions are based on the same kind of actuarial calculations that determine the levels of premiums charged by insurance enterprises.

In practice, however, it may be difficult to calculate precisely the amounts of such imputed contributions. The employer may make estimates itself, perhaps on the basis of the contributions paid into similar funded schemes, in order to calculate its likely liabilities in the future, and such estimates may be used when available. Another acceptable method is to use a reasonable percentage of wages and salaries paid to current employees. Otherwise, the only practical alternative is to use the unfunded non-pension benefits payable by the employer during the same accounting period as an estimate of the imputed remuneration that would be needed to cover the imputed contributions. The benefits actually paid in the current period provide an acceptable estimate of the contributions and associated imputed remuneration.

4.11

In the accounts of the sectors, the costs of direct social benefits appear firstly among uses in the generation of income account, as a component of the compensation of employees, and secondly among uses in the secondary distribution of income account, as social benefits. In order to balance the latter account, it is assumed that the households of employees pay back to the employers' sectors the employers' imputed social contributions, which finance, together with eventual employees' social contributions, the direct social welfare benefits provided to them by those same employers. This notional circuit is similar to that for employers' actual social contributions, which pass through the accounts of households and are then deemed to be paid by them to the insurers.

4.12

Time of recording of compensation of employees:

(a) wages and salaries (D.11) are recorded in the period during which the work is done. However, ad hoc bonuses or other exceptional payments such as 13th month payments are recorded when they are due to be paid. The time of recording of stock options is spread over the period between the grant date and vesting date. If the data are inadequate, the value of the option is recorded at vesting date;

(b) employers' actual social contributions (D.121) are recorded in the period during which the work is done;

(c) employers' imputed social contributions (D.122) are recorded according to following categories:

(1) Those representing the counterpart of compulsory direct social benefits are recorded in the period during which the work is done;

(2) Those representing the counterpart of voluntary direct social benefits are recorded at the time these benefits are provided.

4.13

The compensation of employees consists of the following components:

(a) the compensation of resident employees by resident employers;

(b) the compensation of resident employees by non-resident employers;

(c) the compensation of non-resident employees by resident employers.

The items listed in points (a) to (c) are recorded as follows:

(1) the compensation of resident and non-resident employees by resident employers groups together the items listed in points (a) and (c) and is recorded as uses in the generation of income account of the sectors and industries to which the employers belong;

(2) the compensation of resident employees by resident and non-resident employers groups together the items listed in points (a) and (b) and is recorded as resources in the allocation of primary income account of households;

for the item referred to in point (b), compensation of resident employees by non-resident employers is recorded as uses in the external account of primary incomes and current transfers;

for the item referred to in point (c), compensation of non-resident employees by resident employers, is recorded as resources in the external account of primary incomes and current transfers.

Taxes on production and imports (D.2)

4.14

Definition: : taxes on production and imports (D.2) consist of compulsory, unrequited payments, in cash or in kind, which are levied by general government, or by the institutions of the European Union, in respect of the production and importation of goods and services, the employment of labour, the ownership or use of land, buildings or other assets used in production. Such taxes are payable irrespective of profits made.

4.15

Taxes on production and imports are comprised of the following components:

(a) taxes on products (D.21):

(1) value added type taxes (VAT) (D.211);

(2) taxes and duties on imports excluding VAT (D.212);

– import duties (D.2121),

– taxes on imports excluding VAT and duties (D.2122);

(3) taxes on products, except VAT and import taxes (D.214);

(b) other taxes on production (D.29).

Taxes on products (D.21)

4.16

Definition: : taxes on products (D.21) are taxes that are payable per unit of a given good or service produced or transacted. The tax may be a specific amount of money per unit of quantity of a good or service, or it may be calculated as a specified percentage of the price per unit or value of the goods and services produced or transacted. Taxes assessed on a product, irrespective of which institutional unit pays the tax, are included in taxes on products, unless specifically included under another heading. Value added type taxes (VAT) (D.211)

4.17

Definition: : a value added type tax (VAT) is a tax on goods or services collected in stages by enterprises and which is ultimately charged in full to the final purchaser. This heading comprises the value added tax which is collected by general government and which is applied to national and imported products, as well as other deductible taxes applied under similar rules to those governing VAT. All value added type taxes are hereinafter referred to as: VAT. The common feature of VAT is that producers are obliged to pay to the government only the difference between the VAT on their sales and the VAT on their purchases for intermediate consumption and gross fixed capital formation. VAT is recorded net in the sense that:

(a) outputs of goods and services and imports are valued excluding invoiced VAT;

(b) purchases of goods and services are recorded inclusive of non-deductible VAT. VAT is recorded as being borne by purchasers, not sellers, and then only by those purchasers who are not able to deduct it. The greater part of VAT is recorded as being paid on final uses, mainly on household consumption.

For the total economy, VAT is equal to the difference between total invoiced VAT and total deductible VAT (see paragraph 4.27). Taxes and duties on imports excluding VAT (D.212)

4.18

Definition: : taxes and duties on imports excluding VAT (D.212) comprise compulsory payments levied by general government or the institutions of the European Union on imported goods, excluding VAT, in order to admit them to free circulation on the economic territory, and on services provided to resident units by non-resident units. The compulsory payments include: (a) import duties (D.2121): these consist of customs duties, or other import charges, payable according to customs tariff schedules on goods of a particular type when they enter for use in the economic territory of the country of utilisation; (b) taxes on imports, excluding VAT and import duties (D.2122).

This heading includes: (1) levies on imported agricultural products; (2) monetary compensatory amounts levied on imports; (3) excise duties and special taxes on certain imported products, provided such duties and taxes on similar products of domestic origin are paid by the producer branch itself; (4) general sales taxes payable on imports of goods and services; (5) taxes on specific services provided by non-resident enterprises to resident units within the economic territory; (6) profits of public enterprises exercising a monopoly over the imports of some goods or services, which are transferred to the state. Net taxes and duties on imports excluding VAT are calculated by deducting import subsidies (D.311) from taxes and duties on imports excluding VAT (D.212).

Taxes on products, except VAT and import taxes (D.214)

4.19

Definition: : taxes on products, except VAT and import taxes (D.214) consist of taxes on goods and services that become payable as a result of the production, export, sale, transfer, leasing or delivery of those goods or services, or as a result of their use for own consumption or own capital formation.

4.20

This heading includes, in particular:

(a) excise duties and consumption taxes (other than those included in taxes and duties on imports);

(b) stamp taxes on the sale of specific products, such as alcoholic beverages or tobacco, and on legal documents or cheques;

(c) taxes on financial and capital transactions, 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). They are treated as taxes on the services of intermediaries;

(d) car registration taxes;

(e) taxes on entertainment;

(f) taxes on lotteries, gambling and betting, other than those on winnings;

(g) taxes on insurance premiums;

(h) other taxes on specific services: hotels or lodging, housing services, restaurants, transportation, communication, advertising;

(i) general sales or turnover taxes (excluding VAT type taxes): these include manufacturers' wholesale and retail sales taxes, purchase taxes, turnover taxes;

(j) profits of fiscal monopolies which are transferred to the state, except those exercising a monopoly over the imports of a given good or service (included in D.2122). Fiscal monopolies are public enterprises which 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. 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 and so on — it is not considered as a fiscal monopoly;

(k) export duties and monetary compensatory amounts collected on exports.

4.21

Net taxes on products are obtained by deducting subsidies on products (D.31) from taxes on products (D.21).

Other taxes on production (D.29)

4.22

Definition: : other taxes on production (D.29) consist of all taxes that enterprises incur as a result of engaging in production, independent of the quantity or value of the goods and services produced or sold. Other taxes on production may be payable on the land, fixed assets or labour employed in the production process or on certain activities or transactions.

4.23

Other taxes on production (D.29) include the following:

(a) taxes on the ownership or use of land, buildings, or other structures utilised by enterprises in production (including owner-occupiers of dwellings); (b) taxes on the use of fixed assets (for example vehicles, machinery and equipment) for purposes of production, irrespective of the assets being owned or rented; (c) taxes on the total wage bill and payroll taxes; (d) taxes on international transactions (for example travel abroad, foreign remittances, or similar transactions with non-residents) for purposes of production; (e) taxes paid by enterprises for business and professional licences, if those licences are granted automatically on payment of the amounts due. In this case, it is likely that they are simply a means of raising revenue, even though the government may provide a certificate, or authorisation, in return. However, if the government uses the issue of licences to exercise some proper regulatory function, for example, when 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 treated as purchases of services rendered, unless the amounts charged for the licences are out of all proportion to the costs of the checks carried out by the government; (f) taxes on pollution resulting from production activities. 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; (g) under-compensation of VAT resulting from the flat-rate system, frequently found in agriculture.

4.24

Other taxes on production exclude taxes on the personal use of vehicles etc. by households, which are recorded under current taxes on income, wealth, etc.

Taxes on production and imports paid to the institutions of the European Union

4.25

The taxes on production and imports paid to the institutions of the European Union include the following taxes collected by national governments on behalf of the institutions of the European Union: receipts from the common agricultural policy: levies on imported agricultural products, monetary compensatory amounts levied on exports and imports, sugar production levies and the tax on isoglucose, co-responsibility taxes on milk and cereals; receipts from trade with third countries: customs duties levied on the basis of the Integrated Tariff of the European Communities (TARIC).

The taxes on production and imports paid to the Institutions of the European Union do not include the VAT-based third own resource which is included in other current transfers under the heading 'VAT- and GNI-based EU own resources' (D.76) (see paragraph 4.140).

Taxes on production and imports: time of recording and amounts to be recorded

4.26

Recording of taxes on production and imports: taxes on production and imports are recorded when the activities, transactions or other events occur which create the liabilities to pay taxes.

4.27

Some economic activities, transactions or events, which generate an obligation to pay taxes, escape the notice of the tax authorities. Such activities, transactions or events do not give rise to financial assets or liabilities in the form of payables or receivables. The amounts recorded are only those evidenced by tax assessments, declarations or other instruments which create liabilities in the form of obligations to pay on the part of taxpayers. No imputations are made for taxes not evidenced by tax assessments.

Taxes recorded in the accounts are derived from two sources: amounts evidenced by assessments and declarations or cash receipts.

(a) If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. An alternative treatment is that a capital transfer (D.995), as described in point (j) of paragraph 4.165, to the relevant sectors is recorded equal to the same adjustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of taxes.

(b) If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activity took place to generate the tax liability. This adjustment is based on the average time difference between the activity and cash tax receipt.

4.28

The total value of the taxes recorded includes interest charged on arrears of taxes due and fines imposed by taxation authorities where such interest and fines are not separately identifiable. The total value of taxes includes charges imposed in connection with the collection or recovery of taxes outstanding. The total value is reduced by the amount of any tax rebates made by general government as a matter of economic policy and any tax refunds made as a result of over-payments.

4.29

In the system of accounts, taxes on production and imports (D.2) are recorded as follows:

(a) on the uses side, in the generation of income account of the total economy;

(b) on the resources side, in the allocation of primary income account of the general government sector and in the external account of primary incomes and current transfers.

Taxes on products are recorded as resources in the goods and services account of the total economy. This enables the resources of goods and services — valued exclusive of taxes on products — to be balanced with the uses, which are valued inclusive of such taxes. Other taxes on production (D.29) are recorded as uses in the generation of income accounts of the industries or sectors which pay them.

Subsidies (D.3)

4.30

Definition: : subsidies (D.3) are current unrequited payments which general government or the institutions of the European Union make to resident producers. The following are examples of the objectives of giving subsidies:

(a) influencing levels of production;

(b) influencing the prices of products; or

(c) influencing the remuneration of the factors of production.

Non-market producers can receive other subsidies on production only if those payments depend on general regulations applicable to both market and non-market producers. Subsidies on products are not recorded in non-market output (P.13).

4.31

Subsidies granted by the institutions of the European Union cover only current transfers made directly by them to resident producer units.

4.32

Subsidies are classified into:

(a) subsidies on products (D.31):

(1) import subsidies (D.311);

(2) other subsidies on products (D.319);

(b) other subsidies on production (D.39).

Subsidies on products (D.31)

4.33

Definition: : subsidies on products (D.31) are subsidies payable per unit of a good or service produced or imported.

The amount of subsidies on products can be specified in the following ways:

(a) a specific amount of money per unit of quantity of a good or service;

(b) a specified percentage of the price per unit;

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(c)the difference between a specified target price and the market price paid by a buyer.

A subsidy on a product usually becomes payable when the good is produced, sold or imported, but it may also be payable in other circumstances such as when a good is transferred, leased, delivered or used for own consumption or own capital formation. Subsidies on products only apply to market output (P.11) or to output for own final use (P.12). Import subsidies (D.311)

4.34

Definition: : import subsidies (D.311) consists of subsidies on goods and services that become payable when the goods cross the frontier for use in the economic territory or when the services are delivered to resident institutional units. Import subsidies include losses incurred as a matter of deliberate government policy by government trading organisations whose function is to purchase products from non-residents and then sell them at lower prices to residents.

Other subsidies on products (D.319)

4.35

Other subsidies on products (D.319) include the following:

(a) subsidies on products used domestically: these consist of subsidies payable to resident producers in respect of their production which is used or consumed within the economic territory;

(b) losses of government trading organisations whose function is to buy the products of resident producers and then sell them at lower prices to residents or non-residents, when they are incurred as a matter of deliberate government economic or social policy;

(c) subsidies to public corporations and quasi-corporations to compensate for persistent losses which they incur on their productive activities as a result of charging prices which are lower than their average costs of production as a matter of deliberate government or European economic and social policy;

(d) direct subsidies on exports payable directly to resident producers when the goods leave the economic territory or the services are provided to non-residents — except repayments at the customs frontier of taxes on products previously paid and waiving of the taxes that would be due if the goods were to be sold or used inside the economic territory.

Other subsidies on production (D.39)

4.36

Definition: : other subsidies on production (D.39) consist of subsidies except subsidies on products which resident producer units may receive as a consequence of engaging in production.

For their non-market output, non-market producers can receive other subsidies on production only if those payments from general government depend on general regulations applicable to market and non-market producers as well.

4.37

Other subsidies on production (D.39) include the following examples:

(a) subsidies on payroll or work force i.e. subsidies payable on the total wage or salary bill, or total work force, or on the employment of particular types of persons such as physically handicapped persons or persons who have been unemployed for long periods, or on the costs of training schemes organised or financed by enterprises;

(b) subsidies to reduce pollution: these consist of current subsidies intended to cover some or all of the costs of additional processing undertaken to reduce or eliminate the discharge of pollutants into the environment;

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(c) grants for interest relief made to resident producer units, even when they are intended to encourage capital formation. When a grant serves the dual purpose of financing both the amortisation of the debt and the payment of interest on it, and when it is not possible to apportion it between two elements, the whole of the grant is treated as an investment grant. Grants for interest relief are current transfers designed to lighten producers' operating costs. They are treated in the accounts as subsidies to the producers benefiting from them, even when the difference in the interest is paid directly by the government to the credit institution granting the loan;

(d) over-compensation of VAT resulting from the flat-rate system, often for example found in agriculture.

4.38

The following are not treated as subsidies (D.3):

(a) current transfers from general government to households in their capacity as consumers. These are treated either as social benefits (D.62 or D.63) or as miscellaneous current transfers (D.75);

(b) current transfers between different parts of general government in their capacity as producers of non-market goods and services, except other subsidies on production (D.39). Current transfers are recorded as current transfers within general government (D.73);

(c) investment grants (D.92);

(d) extraordinary payments into social insurance funds, in so far as such payments are designed to increase the actuarial reserves of these funds. Such payments are recorded as other capital transfers (D.99);

(e) transfers made by general government to non-financial corporations and quasi-corporations to cover losses accumulated over several financial years, or exceptional losses due to factors outside the control of the enterprise, which are recorded as other capital transfers (D.99);

(f) the cancellation of debts which producer units have incurred towards the government (resulting, for example, from loans advanced by a government agency to a non financial enterprise which has accumulated trading losses over several financial years). Such transactions are treated in the accounts as other capital transfers (D.99);

(g) payments made by general government or by the rest of the world for damage to, or losses of, capital goods as a result of acts of war, other political events or national disasters. They are recorded as other capital transfers (D.99);

(h) shares and other equities in corporate enterprises purchased by general government, which are shown under the heading equity and investment fund shares (AF.5);

(i) payments made by a general government agency which has assumed responsibility for abnormal pension charges affecting a public enterprise. These payments are recorded as miscellaneous current transfers (D.75);

(j) payments made by general government to market producers to pay entirely, or in part, for goods and services that those market producers provide directly and individually to households in the context of social risks or needs (see paragraph 4.84), and to which the households have a right. These payments are included in individual consumption expenditure of general government (P.31) and subsequently in social transfers in kind — market production purchased by government and NPISHs (D.632) and actual individual consumption of households (P.41).

4.39

Time of recording: subsidies (D.3) are recorded when the transaction or the event (production, sale, import, etc.) which gives rise to the subsidy occurs.

Particular cases are the following:

(a) subsidies which take the form of the difference between the purchase price and the selling price charged by a government trading agency are recorded at the time the goods are bought by the agency;

(b) subsidies intended to cover a loss incurred by a producer are recorded at the time the general government agency decides to cover the loss.

4.40

Subsidies (D.3) are recorded as:

(a) negative uses in the generation of income account of the total economy;

(b) negative resources in the allocation of primary income account of the general government sector and in the external account of primary incomes and current transfers.

Subsidies on products are recorded as negative resources in the goods and services account of the total economy. Other subsidies on production (D.39) are recorded as resources in the generation of income accounts of the industries or sectors which receive them.

Consequences of a system of multiple exchange rates on taxes on production and imports and on subsidies: multiple exchange rates are not currently applicable among the Member States. In such a system:

(a) implicit taxes on imports are treated as taxes on imports excluding VAT and import duties (D.2122);

(b) implicit taxes on exports are treated as taxes on products, except VAT and import taxes (D.214);

(c) implicit subsidies on imports are treated as import subsidies (D.311);

(d) implicit subsidies on exports are treated as other subsidies on products (D.319).

Property income (D.4)

4.41

Definition: : property income (D.4) accrues when the owners of financial assets and natural resources put them at the disposal of other institutional units. The income payable for the use of financial assets is called investment income, while that payable for the use of a natural resource is called rent. Property income is the sum of investment income and rent.

Property incomes are classified as follows:

(a) interest (D.41);

(b) distributed income of corporations (D.42):

(1) dividends (D.421);

(2) withdrawals from income of quasi-corporations (D.422);

(c) reinvested earnings on foreign direct investment (D.43);

(d) other investment income (D.44):

(1) investment income attributable to insurance policy holders (D.441);

:::::::

(2) investment income payable on pension entitlements (D.442);

(3) investment income attributable to collective investment fund shareholders (D.443);

(e) rents (D.45).

Interest (D.41)

4.42

Definition: : interest (D.41) is property income receivable by the owners of a financial asset for putting it at the disposal of another institutional unit. It applies to the following financial assets:

(a) deposits (AF.2);

(b) debt securities (AF.3);

(c) loans (AF.4);

(d) other accounts receivable (AF.8).

Income on SDR holdings and allocations and on unallocated gold accounts is treated as interest. The financial assets giving rise to interest are claims of creditors over debtors. Creditors lend funds to debtors that lead to the creation of one or other of the financial instruments listed above.

Interest on deposits and loans

4.43

The amounts of interest on loans and deposits payable to and receivable from financial institutions include an adjustment for a margin that represents an implicit payment for the services provided by the financial institutions in providing loans and accepting deposits. The payment or receipt is divided into the service part and into the national accounts concept of interest. The actual payments or receipts to or from financial institutions, described as bank interest, need to be partitioned so that the national accounts concept of interest and the service charges may be recorded separately. The amounts of national accounts interest paid by borrowers to financial institutions is less than bank interest by the estimated values of the charges payable, while the amounts of national accounts interest receivable by depositors is higher than bank interest by the amount of the service charge payable. The values of the charges are recorded as sales of services in the production accounts of financial institutions and as uses in the accounts of their customers.

Interest on debt securities

4.44

Interest on debt securities comprise interest on bills and similar short-term instruments, and interest on bonds and debentures.

Interest on bills and similar short-term instruments

4.45

The difference between the face value and the price paid at the time of issue (i.e. the discount) is a measure of the interest payable over the life of the bill. The increase in the value of a bill due to the accumulation of accrued interest does not constitute a holding gain because it is due to an increase in the principal outstanding and not a change in the price of the asset. Other changes in the value of the bill are treated as holding gains/losses.

Interest on bonds and debentures

4.46

Bonds and debentures are long-term securities that give the holder the unconditional right to a fixed or contractually determined variable money income in the form of coupon payments, or to a stated fixed sum on a specified date or dates when the security is redeemed, or both of these terms.

(a) zero-coupon bonds: there are no coupon payments. The interest based on the difference between the redemption price and the issue price has to be distributed over the years to the maturity of the bond. The interest accruing each year is reinvested in the bond by its holder, thus counterpart entries equal to the value of the accrued interest are recorded in the financial account as the acquisition of more bond by the holder and as a further issue of more bond by the issuer or debtor (i.e. as a growth in the 'volume' of the original bond);

(b) other bonds, including deep-discounted bonds. The interest has two components: (1) the amount of the money income receivable from coupon payments each period; (2) the amount of interest accruing each period attributable to the difference between the redemption price and the issue price, calculated in the same way as for zero-coupon bonds; (c) index-linked securities: (1) the amounts of the coupon payments and/or the principal outstanding are linked to a general price index. The change in the value of the principal outstanding between the beginning and the end of a particular accounting period due to the movement in the relevant index is treated as interest accruing in that period, in addition to any interest due for payment in that period;

(2) the amounts to be paid at maturity are linked to a narrow index that includes a holding gain motive. Interest accruals are to be determined by fixing the rate of accrual at the time of issue. Accordingly, interest is the difference between the issue price and the market expectation, at inception, of all payments that the debtor will have to make; this amount is recorded as interest accruing over the life of the instrument. This approach records as income the yield-to-maturity at issuance, which incorporates the results of the indexation that are foreseen at the moment the instrument was created. Any deviation of the underlying index from the originally expected path leads to holding gains or losses which will not normally cancel out over the life of the instrument. The interest accruing as a result of the indexing is effectively reinvested in the security and must be recorded in the financial accounts of the holder and issuer. Interest rate swaps and forward rate agreements 4.47 Payment resulting from any kind of swap arrangement is recorded as a transaction in financial derivatives in the financial account, and not as interest recorded as property income. Transactions under forward rate agreements are recorded as transactions in financial derivatives in the financial account, and not recorded as property income.

Interest on financial leases 4.48 A financial lease is a method of financing for example the purchase of machinery and equipment. The lessor purchases the equipment and the lessee contracts to pay rentals which enable the lessor, over the period of the contract, to recover his costs including the interest foregone on the money used to purchase the equipment. The lessor is treated as making a loan to the lessee equal to the value of the purchaser's price paid for the asset, this loan being repaid over the period of the lease. The rental paid each period by the lessee is therefore treated as having two components: a repayment of principal and a payment of interest. The rate of interest on the imputed loan is determined by the total amount paid in rentals over the life of the lease in relationship to the purchaser's price of the asset. The share of the rental that represents interest declines over the duration of the lease as the principal is repaid. The initial loan by the lessee, together with the subsequent repayments of principal, is recorded in the financial accounts of the lessor and lessee. The interest payments are recorded as interest in the primary distribution of income account.

Other interest 4.49 Other interest comprises the following: (a) interest charged on bank overdrafts; (b) extra interest paid on deposits left longer than originally agreed; and (c) payments determined by lottery, to bond holders. Time of recording 4.50 Interest is recorded on an accrual basis, that is, interest is recorded as accruing continuously over time to the creditor on the amount of principal outstanding. The interest accruing in each accounting period must be recorded whether or not it is actually paid or added to the principal outstanding. When it is not paid, the increase in the principal is recorded in the financial account as an acquisition of a financial asset by the creditor and an equal acquisition of a liability by the debtor. 4.51 Interest is recorded before the deduction of taxes levied on it. Interest received and paid is recorded inclusive of grants for interest relief, irrespective of whether those grants are directly paid to financial institutions, or to beneficiaries (see paragraph 4.37).

The value of the services provided by financial intermediaries being allocated among different customers, the actual payments or receipts of interest to or from financial intermediaries are adjusted to eliminate the margins that represent the implicit charges made by financial intermediaries. The amounts of interest paid by borrowers to financial intermediaries must be reduced by the estimated values of the charges payable, and on the contrary the amounts of interest receivable by depositors must be increased. The values of the charges are treated as payments for services rendered by financial intermediaries to their customers and not as payments of interest. 4.52 In the system of accounts, interest is recorded as: (a) resources and uses in the allocation of primary income account of the sectors; (b) resources and uses in the rest of the world account of primary incomes and current transfers.

Distributed income of corporations (D.42) Dividends (D.421) 4.53 Definition: dividends (D.421) are a form of property income to which owners of shares (AF.5) become entitled as a result of, for example, placing funds at the disposal of corporations. Raising equity capital through the issue of shares is a way of raising funds. In contrast to loan capital, equity capital does not give rise to a liability that is fixed in monetary terms and it does not entitle the holders of shares of a corporation to a fixed or predetermined income. Dividends are all distributions of profits by corporations to their shareholders or owners. 4.54 Dividends also include: (a) shares issued to shareholders in payment of the dividend for the financial year. Issues of bonus shares, which represent the capitalisation of own funds in the form of reserves and undistributed profits and give rise to new shares to shareholders in proportion for their holdings, are not included; (b) the income paid to general government by public enterprises which are recognised as independent legal entities not constituted as corporate enterprises; (c) incomes generated by non-observed activities and transferred to the owners of corporations who participate in such activities for their private use.

4.55 Dividends (D.421) exclude super-dividends. Super-dividends are dividends that are large relative to the recent level of dividends and earnings. In order to assess whether the dividends are large, the concept of distributable income is used. Distributable income of a corporation is equal to entrepreneurial income plus all current transfers receivable less all current transfers payable and less the adjustment for the change in pension entitlements. The ratio of dividends to distributable income over the recent past is used to assess the plausibility of the current level of dividends. If the level of dividends declared is greatly in excess, the dividends causing the excess are treated as financial transactions and classified as 'super-dividends'. Such super-dividends are treated as the withdrawal of owners' equity from the corporation (F.5). That treatment applies to corporations, whether incorporated or quasi-corporate and whether subject to foreign or domestic private control. 4.56 In the case of public corporations, super-dividends are large and irregular payments or payments that exceed the entrepreneurial income of the relevant accounting period, which are funded from accumulated reserves or sales of assets. Super-dividends of public corporations are to be recorded as withdrawal of equity (F.5) for the difference between the payments and the entrepreneurial income of the relevant accounting period (see paragraph 20.206).

Interim dividends are described in paragraph 20.207. 4.57 Time of recording: Although dividends represent a part of income that has been generated over a period, dividends are not recorded on an accrual basis. For a short period after a dividend is declared, but before it is actually payable, shares may be sold 'ex dividend' meaning that the dividend is still payable to the owner at the date the dividend was declared and not to the owner on the date payable. A share sold 'ex dividend' is therefore worth less than one sold without this constraint. The time of recording of dividends is the point in time at which the share price starts to be quoted on an ex-dividend basis and not at a price that includes the dividend. Dividends are recorded as: (a) uses in the allocation of primary income account of the sectors in which the corporations are classified; (b) as resources in the allocation of primary income account of the sectors in which shareholders are classified; (c) as uses and resources in the rest of the world account of primary incomes and current transfers.

Withdrawals from the income of quasi-corporations (D.422) 4.58 Definition: withdrawals from the income of quasi-corporations (D.422) are the amounts which entrepreneurs withdraw for their own use from the profits earned by the quasi-corporations which belong to them. Such withdrawals are recorded before the deduction of current taxes on income, wealth, etc., which are deemed always to be paid by the owners of the businesses. When a quasi-corporation makes a trading profit, the unit which owns it may choose to leave part or all of the profit in the business, especially for investment purposes. The income left in the business appears as saving by the quasi-corporation, and only the profits actually withdrawn by the owner units are recorded in the accounts under the heading withdrawals from the income of quasi-corporations. 4.59 When profits are earned in the rest of the world by the branch-offices, agencies, etc. of resident enterprises, in so far as these branch-offices etc. are treated as non-resident units, retained earnings appear as reinvested earnings on foreign direct investment (D.43). Only the income actually transferred to the parent enterprise is treated in the accounts as withdrawals from the income of quasi-corporations received from the rest of the world. The same principles are applied to deal with the relations between branch-offices, agencies, etc. operating on the economic territory and the non-resident parent enterprise to which they belong.

4.60 Withdrawals from the income of quasi-corporations include the net operating surplus received by residents as owners of land and buildings in the rest of the world, or by non-residents as owners of land or buildings on the economic territory concerned. In respect of transactions in land and buildings carried out on the economic territory of a country by non-resident units, notional resident units are created, in which the non-resident owners own the equity. The rental value of owner-occupied dwellings abroad is registered as imports of services and the corresponding net operating surplus as primary income received from the rest of the world; the rental value of owner-occupied dwellings belonging to non-residents is registered as exports of services and the corresponding net operating surplus as primary income paid to the rest of the world. Withdrawals from the income of quasi-corporations include incomes generated by non-observed activities of quasi-corporations that are transferred to the owners participating in such activities for their private use.

4.61 Withdrawals from the income of quasi-corporations do not include amounts which their owners receive from: (a) the sale of existing fixed capital goods; (b) the sale of land and other non-produced assets; (c) withdrawals of equity. Such amounts are treated as withdrawals from equity in the financial account as they amount to a partial or total liquidation equity in the quasi-corporation. If the quasi-corporation is owned by government, and if it runs a persistent operating deficit as a matter of deliberate government economic and social policy, any regular transfers of funds into the enterprise made by government to cover its losses are treated as subsidies. 4.62 Time of recording: withdrawals from the income of quasi-corporations are recorded when they are made by the owners. 4.63 In the system of accounts, withdrawals from the income of quasi-corporations appear as: (a) uses in the allocation of primary income account of the sectors in which the quasi-corporations are classified; (b) resources in the allocation of primary income account of the owner sectors; (c) uses and resources in the external account of primary incomes and current transfers.

Reinvested earnings on foreign direct investment (D.43) 4.64 Definition: reinvested earnings on foreign direct investment (D.43) are equal to the operating surplus of the foreign direct investment enterprise plus any property incomes or current transfers receivable, minus any property incomes or current transfers payable, including actual remittances to foreign direct investors and any current taxes payable on the income, wealth, etc., of the foreign direct investment enterprise. 4.65 A foreign direct investment enterprise is an incorporated or unincorporated enterprise in which an investor resident in another economy owns 10 % or more of the ordinary shares or voting power in an incorporated enterprise, or the equivalent for an unincorporated enterprise. Foreign direct investment enterprises comprise those entities that are identified as subsidiaries, associates and branches. A subsidiary is where the investor owns more than 50 %, an associate is where the investor owns 50 % or less, and a branch is a wholly or jointly owned unincorporated enterprise. The foreign direct investment relationship may be direct or indirect as a result of a chain of ownership. 'Foreign direct investment enterprises' is a broader concept than 'foreign controlled corporations'.

4.66 Actual distributions may be made from the entrepreneurial income of foreign direct investment enterprises in the form of dividends or withdrawals of income from quasi-corporations. In addition, retained earnings are treated as if they were distributed and remitted to foreign direct investors in proportion to their ownership of the equity of the enterprise and then reinvested by them by means of additions to equity in the financial account. Reinvested earnings on foreign direct investment can be either positive or negative. 4.67 Time of recording: reinvested earnings on foreign direct investment are recorded when they are earned. In the system of accounts, reinvested earnings on foreign direct investment are recorded as: (a) uses and resources in the allocation of primary income account of the sectors; (b) uses and resources in the external account of primary incomes and current transfers.

Other investment income (D.44) Investment income attributable to insurance policy holders (D.441) 4.68 Definition: Investment income attributable to insurance policy holders corresponds to total primary incomes received from the investment of insurance technical reserves. The reserves are those where an insurance corporation recognises a corresponding liability to the policyholders. Insurance technical reserves are invested by insurance enterprises in financial assets or land (from which net property income, i.e. after deducting any interest paid, is received) or in buildings (which generate net operating surpluses). Investment income attributable to insurance policy holders is recorded separately between holders of non-life and life policies. For non-life policies, the insurance corporation has a liability towards the policy holder of the amount of the premium deposited with the corporation but not yet earned, the value of any claims due but not yet paid and a reserve for claims not yet notified or notified but not yet settled. Set against this liability, the insurance corporation holds technical reserves. The investment income on these reserves is treated as income attributable to the policy holders, then distributed to the policy holders in the allocation of primary income account and paid back to the insurance corporation as a premium supplement in the secondary distribution of income account.

For an institutional unit operating a standardised loan guarantee scheme against fees, there could also be investment income earned on the reserves of the scheme and this must also be shown as being distributed to the units paying the fees (which may not be the same units which stand to benefit from the guarantees) and treated as supplementary fees in the secondary distribution of income account. For life insurance policies and annuities, insurance corporations have liabilities towards the policy holders and annuitants equal to the present value of expected claims. Set against those liabilities, insurance corporations have funds belonging to the policy holders consisting of bonuses-declared-for-with-profits policies as well as provisions for both policy holders and annuitants of the payment of future bonuses and other claims. Those funds are invested in a range of financial and non-financial assets. The bonuses declared to holders of life policies are recorded as investment income receivable by the policyholders and are treated as premium supplements paid by the policyholders to the insurance corporations. The investment income attributable to life insurance policy holders is recorded as payable by the insurance company and receivable by households in the allocation of primary income account. Unlike the case of non-life insurance or pensions, the amount carries through to saving and is then recorded as a financial transaction, specifically an increase in the liabilities of life insurance corporations, in addition to new premiums less the service charge less benefits payable.

Investment income payable on pension entitlements (D.442) 4.69 Pension entitlements arise from one of two different types of pension schemes. These are defined contribution schemes and defined benefit schemes. A defined contribution scheme is one where contributions by both employers and employees are invested on behalf of the employees as future pensioners. No other source of funding of pensions is available and no other use is made of the funds. The investment income payable on defined contribution entitlements is equal to the investment income on the funds plus any income earned by renting land or buildings owned by the fund. The characteristic of a defined benefit scheme is that a formula is used to determine the level of payments to be made to pensioners. This characteristic makes it possible to determine the level of entitlements as the present value of all future payments, calculated using actuarial assumptions about life lengths and economic assumptions about the interest or discount rate. The present value of the entitlements existing at the start of the year increases because the date when the entitlements become payable is one year nearer. This increase is regarded as investment income attributed to the pension holders in the case of defined benefit scheme. The amount of the increase is neither affected by whether the pension scheme actually has sufficient funds to meet all the obligations nor by the type of increase in the funds, whether it is investment income or holding gains, for example.

Investment income attributable to collective investment fund shareholders (D.443) 4.70 Investment income attributable to collective investment fund shareholders, including mutual funds and unit trusts, consists of the following separate components: – dividends attributable to collective investment fund shareholders (D.4431), – retained earnings attributable to collective investment fund shareholders (D.4432). The dividend component is recorded in exactly the same manner as dividends for individual corporations, as described above. The retained earnings component is recorded using the same principles as those described for foreign direct investment enterprises but is calculated excluding any reinvested earnings on foreign direct investment. The remaining retained earnings are attributed to the investment fund shareholders leaving the investment fund with no saving, and are re-injected into the fund by the investment fund shareholders in a transaction recorded in the financial account. The property income received by mutual funds is recorded as shareholders' property income even if it is not distributed but reinvested on their behalf. Shareholders indirectly pay out of their fund shares to management companies for managing their investments. This service charge is expenditure by shareholders, and not expenditure of funds. Time of recording: other investment income is recorded when it accrues.

4.71 In the system of accounts, other investment income is recorded as: (a) resources in the allocation of primary income account of policy and investment fund holders; (b) uses in the allocation of primary income account of the insurers, pension funds and investment funds; (c) resources and uses in the external account of primary incomes and current transfers. Rent (D.45) 4.72 Definition: rent is the income receivable by the owner of a natural resource for putting the natural resource at the disposal of another institutional unit. There are two different types of resource rents: rent on land, and rent on subsoil resources. Resource rents on other natural resources such as radio spectra follow the same pattern. The distinction between rent and rentals is that rent is a form of property income and rentals are payments for services. Rentals are payments made under an operating lease to use a fixed asset belonging to another unit. Rent is a payment made under a resource lease for access to a natural resource.

Rent on land The rent received by a landowner from a tenant constitutes a form of property income. Rents on land also include the rents payable to the owners of inland waters and rivers for the right to exploit such waters for recreational or other purposes, including fishing. A landowner pays land taxes and incurs maintenance expenses as a consequence of owning the land. Such taxes and expenses are treated as payable by the person entitled to use the land, who is deemed to deduct them from the rent that he would otherwise be obliged to pay to the landowner. Rent reduced in this way by taxes or other expenses for which the landowner is liable is called 'after-tax rent'. 4.73 Rents on land do not include the rentals of buildings and of dwellings situated on it; those rentals are treated as the payment for a market service provided by the owner to the tenant of the building or dwelling, and are recorded in the accounts as the intermediate or final consumption of the tenant. If there is no objective basis on which to split the payment between rent on land and rental on the buildings situated on it, the whole amount is treated as rent when the value of the land is estimated to exceed the value of the buildings on it and as rental otherwise.

Rents on subsoil assets 4.74 This heading includes the royalties that accrue to owners of deposits of minerals or fossil fuels (coal, oil or natural gas), whether private or government units, who grant leases to other institutional units permitting them to explore or to extract such deposits over a specified period of time. 4.75 Time of recording of rents: rents are recorded in the period when payable. 4.76 In the system of accounts, rents are recorded: (a) among resources and among uses in the allocation of primary income account of sectors; (b) among resources and among uses in the external account of primary incomes and current transfers.

Current taxes on income, wealth, etc. (D.5)

4.77 Definition: current taxes on income, wealth, etc. (D.5) cover all compulsory, unrequited payments, in cash or in kind, levied periodically by general government and by the rest of the world on the income and wealth of institutional units, and some periodic taxes which are assessed neither on that income nor that wealth. Current taxes on income, wealth, etc. are divided into: (a) taxes on income (D.51); (b) other current taxes (D.59). Taxes on income (D.51) 4.78 Definition: taxes on income (D.51) consist of taxes on incomes, profits and capital gains. They are assessed on the actual or presumed incomes of individuals, households, corporations or NPIs. They include taxes assessed on holdings of property, land or real estate when these holdings are used as a basis for estimating the income of their owners. Taxes on income include: (a) taxes on individual or household income, examples of which are income from employment, property, entrepreneurship, pensions, etc., and including taxes deducted by employers, for example pay-as-you-earn taxes. Taxes on the income of owners of unincorporated enterprises are included here;

(b) taxes on the income or profits of corporations; (c) taxes on holding gains; (d) taxes on winnings from lotteries or gambling, payable on the amounts received by winners as distinct from taxes on the turnover of producers that organise gambling or lotteries which are treated as taxes on products. Other current taxes (D.59) 4.79 Other current taxes (D.59) includes: (a) current taxes on capital which consist of taxes payable on the ownership or use of land or buildings by owners, and current taxes on net wealth and on other assets, for example jewellery — except taxes mentioned in D.29 (which are paid by enterprises as a result of engaging in production) and those in D.51 (taxes on income); (b) poll taxes, levied per adult or per household, independently of income or wealth; (c) expenditure taxes, payable on the total expenditures of persons or households;

(d) payments by households for licences to own or use for non-business purposes vehicles, boats or aircraft, or for licences for recreational hunting, shooting or fishing, etc. The distinction between taxes and purchases of services from government is defined according to the same criteria as those used in the case of payments made by enterprises namely, if the issue of licenses 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 revenue, even though the government may provide some kind of certificate, or authorisation, in return; in such cases their payment is treated as taxes. If, however, the government uses the issue of licences to organise some proper regulatory function (such as checking the competence, or qualifications, of the person concerned), the payments made are treated as purchases of services from government rather than payments of taxes, unless the payments are clearly out of all proportion to the cost of providing the services; (e) taxes on international transactions, for example travel abroad, foreign remittances, foreign investments, etc., except those payable by producers and import duties paid by households.

4.80 Current taxes on income, wealth, etc. do not include: (a) inheritance taxes, death duties or taxes on gifts between living persons, which are deemed to be levied on the capital of the beneficiaries and are shown under the heading capital taxes (D.91); (b) occasional or exceptional levies on capital or wealth, which are recorded as capital taxes (D.91); (c) taxes on land, buildings or other assets owned or rented by enterprises and used by them for production, such taxes being treated as other taxes on production (D.29); (d) payments by households for licences other than licences for the use of vehicles, boats or aircraft, or licences for recreational hunting, shooting or fishing: driving or pilot's licences, firearm licences, and fees to government such as museum or library admissions, garbage disposal fees, payments for passports, airport fees, court fees etc. which are treated in most cases as purchases of services rendered by government, if they satisfy the criteria set out in point (d) of paragraph 4.79 to be recorded as services.

4.81 The total value of the taxes includes interest charged on arrears of taxes due and fines imposed by taxation authorities if there is no data to estimate such interest and fines separately; it includes charges imposed in connection with the recovery and assessment of taxes outstanding, less the amount of any rebates made by general government as a matter of economic policy and any refunds made as a result of over-payments. Subsidies and social benefits made available via the tax system in the form of tax credits and the incidence of linking payment systems with the tax collection system are increasing. Tax credits represent tax relief and so reduce the tax liability of the beneficiary. If the tax credit system results in the beneficiary receiving the excess when the relief is greater than the liability, the tax credits system is a payable tax credit system. Under a payable tax credits system, payments can be awarded to non-taxpayers as well as taxpayers. Under a payable tax credits system, the whole amount of tax credits is recorded as government expenditure, and not as a reduction of tax revenue. In contrast, some tax credit systems are non-payable tax credits systems where tax credits are limited to the size of the tax liability. Under a non-payable tax credits system, all tax credits are embedded in the tax system and reduce government tax revenue.

4.82 Current taxes on income, wealth, etc. are recorded at the time when activities, transactions or other events occur which create the liabilities to pay. 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 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 or receivables. The amounts to be recorded are determined by the amounts due for payment only when evidenced by tax assessments, declarations or other instruments which create liabilities in the form of clear obligations to pay on the part of taxpayers. Missing taxes are not imputed if not evidenced by tax assessments. Taxes recorded in the accounts are derived from two sources: amounts evidenced by assessments and declarations, and cash receipts. (a) If assessments and declarations are used, the amounts shall be adjusted by a coefficient reflecting assessed and declared amounts never collected. As an alternative treatment, a capital transfer to the relevant sectors is recorded equal to the same adjustment. The coefficients shall be estimated on the basis of past experience and current expectations in respect of assessed and declared amounts never collected. They shall be specific to different types of taxes;

(b) If cash receipts are used, they shall be time-adjusted so that the cash is attributed when the activities, transactions or other events took place to generate the tax liability (or when the amount of tax was determined, in the case of some income taxes). This adjustment is based on the average time difference between the activities, transactions or other events (or the determination of the amount of tax) and cash tax receipt. When retained at source by an employer, current taxes on income, wealth, etc. are included in wages and salaries even if the employer did not pass them on to the general government. The households sector is shown as paying the full amount to the general government sector. The amounts actually unpaid are neutralised under D.995 as a capital transfer from general government to the employers' sectors. In some cases, the liability to pay income taxes can only be determined in a later accounting period than that in which the income accrues. Some flexibility is therefore needed concerning the point in time at which such taxes are recorded. Income taxes deducted at source, such as PAYE taxes and regular prepayments of income taxes, may be recorded in the periods in which they are paid and any final tax liability on income can be recorded in the period in which the liability is determined.

Current taxes on income, wealth, etc. are recorded as: (a) uses in the secondary distribution of income account of the sectors in which the taxpayers are classified; (b) resources in the secondary distribution of income account of general government; (c) uses and resources in the external account of primary incomes and current transfers.

Social contributions and benefits (D.6)