What is GDP? What are methods of calculating GDP? How to calculate product tax at constant prices in Vietnam?

What is GDP?

GDP (Gross Domestic Product) is an index measuring the value of the final products and services produced within the territory of a nation over a specific period, typically a year or quarter. GDP does not include the value of intermediate products used during the production process.

- Usage Perspective (Expenditure):

GDP is calculated based on the total demand of an economy, including:

+ Final consumption of households.

+ Final consumption of the State.

+ Asset accumulation (investment).

+ Difference between exports and imports (trade balance).

- Income Perspective:

GDP includes the total income from production activities, comprising:

+ Income of laborers.

+ Production taxes.

+ Depreciation of fixed assets.

+ Production surplus value.

- Production Perspective:

+ GDP equals the production value minus the intermediate costs in the production process.

Significance of GDP:

- Measures the health of an economy.

- Provides a basis for assessing living standards and labor productivity.

- Serves as a tool for formulating macroeconomic policies.

GDP plays an essential role in reflecting a nation’s economic capacity as well as its socio-economic development level.

The Gross Domestic Product is the value of the final physical products and services created by the economy within a specific period. This implies that GDP does not account for the values of physical products and services that have been used in intermediate stages during the production process of creating products. GDP expresses the production result generated by resident units within a nation's economic territory.

What is GDP? What are methods of calculating GDP? How to calculate product tax at constant prices in Vietnam? (Image from the Internet)

How to calculate GDP of Vietnam?

Based on Appendix I of the content of statistical indicators in the national statistical indicator system issued with Decree 94/2022/ND-CP, regulations specify the method of calculating GDP as follows:

The general content of GDP is examined from various perspectives:

- From a usage (expenditure) perspective: GDP is the total demand of the economy, comprising final consumption of households and the State, asset accumulation, and the difference in goods and services imports and exports.

- From an income perspective: GDP includes income of laborers from production, production tax, fixed asset depreciation used in production, and production surplus value in the period.

- From a production perspective: GDP equals production value minus intermediate costs.

Calculation methods:

GDP at Current Prices

There are 3 methods to calculate Gross Domestic Product at current prices.

(1) Production Method:

GDP equals the total added value at basic prices of all sectors, areas, types of economy, and territories plus product taxes minus product subsidies.

Calculation Formula:

Where:

Added Value at Current Prices = Production Value at Current Prices - Intermediate Costs at Current Prices

(2) Income Method:

GDP is the total income generated from the factors participating in the production process such as labor, capital, land, and machinery. According to this method, Gross Domestic Product includes: Income of laborers from business production (in cash and kind converted to cash), production tax (subsidies for production deducted), fixed asset depreciation used in production, and surplus/mixed income.

Calculation Formula:

(3) Usage (Expenditure) Method:

GDP equals the total of 3 factors: Final consumption of households and the State; asset accumulation (fixed assets, current assets, and rare assets) and the difference between exports and imports of goods and services.

Calculation Formula:

GDP at Constant Prices

There are two methods to calculate the Gross Domestic Product at constant prices.

(1) Production Method:

GDP equals the total added value at constant prices of all sectors, areas, types of economy, and territories plus product taxes minus product subsidies at constant prices.

Calculation Formula:

Where:

- Added Value at Constant Prices is calculated as follows:

Added Value at Constant Prices = Production Value at Constant Prices - Intermediate Costs at Constant Prices

+ Production Value at Constant Prices is calculated as follows:

Production Value at Constant Prices = Production Value at Current Prices (:) Corresponding price index of the reporting period compared to the base period

+ Intermediate Costs at Constant Prices are calculated as follows:

Intermediate Costs at Constant Prices = Production Value at Constant Prices x Intermediate Cost Ratio of the comparable base year

- Product Tax at Constant Prices is calculated as follows:

Product Tax at Constant Prices = Value Added Tax of types, other product taxes at constant prices + Import Tax at Constant Prices

Value Added Tax of types, other product taxes at constant prices = Value Added Tax of types, other product taxes at current prices (:) Deflator index of added value of the reporting period compared to the base period

Import Tax at Constant Prices = Import Tax at Current Prices (:) Import price index by import goods group of the reporting period compared to the base period

- Product Subsidy at Constant Prices is calculated as follows:

Product Subsidy at Constant Prices = Product Subsidy at Current Prices (:) Deflator index of added value of the reporting period compared to the base period

Deflator index of added value of the reporting period compared to the base period = Added value of the reporting period at current prices (:) Added value of the reporting period at constant prices

**(2) Usage Method: The Gross Domestic Product at constant prices equals the total of final consumption at constant prices, asset accumulation at constant prices, and the difference in goods and service imports and exports at constant prices.

Calculation Formula:

Where:

- Final Consumption at Constant Prices is calculated by dividing final consumption by product group of goods and services by the consumer price index (CPI) or production price index for goods and services of the reporting period compared to the base period of the corresponding groups.

Asset Accumulation at Constant Prices is calculated using the following formula:

Asset Accumulation of the reporting period by type of asset at constant prices = Asset Accumulation of the reporting period by type of asset at current prices (:) Production price index by type of asset of the reporting period compared to the base period

- Goods import and export at constant prices is calculated using the following formula:

Total Export/Import Value at Constant Prices = Total Export/Import Value at Current Prices of the reporting year calculated in VND (:) Export/Import price index in VND of the reporting year compared to the base year

Main Division

[1] Quarterly, 6 months, 9 months:

- Economic sector;

- Usage Purpose (asset accumulation/final consumption/export-import difference);

- Province, city under Central authority;

- Socio-economic regions.

[2] Yearly:

- Economic sector;

- Economic type;

- Usage Purpose (asset accumulation/final consumption/export-import difference);

- Province, city under Central authority;

- Socio-economic regions.

[3] Announcement Period: Quarter, 6 months, 9 months, year.

How to calculate product tax at constant prices in Vietnam?

Based on Appendix I of the content of statistical indicators in the national statistical indicator system issued with Decree 94/2022/ND-CP, regulations specify the method of calculating product tax at constant prices as follows:

- Product tax at constant prices is calculated as follows:

Product Tax at Constant Prices = Value Added Tax of Types, Other Product Taxes at Constant Prices + Import Tax at Constant Prices

Where:

Value Added Tax of types, other product taxes at constant prices = Value Added Tax of types, other product taxes at current prices (:) Deflator index of added value of the reporting period compared to the base period

Import Tax at Constant Prices = Import Tax at Current Prices (:) Import price index by import goods group of the reporting period compared to the base period