<GDP-by-TAX APPROACH (using VAT Returns declared to government)

It is possible to calculate monthly GDP of a country by using the form given at the bottom of this page. This is possible for countries that use tax on sale (TOS) system (i.e. VAT system or sales tax system). Those countries constitude almost all countries and 99% of the world's GDP. In those countries, entities submit monthly VAT returns to government. More than 170 countries worldwide use VAT system and VAT term is more familiar than sales tax term. VAT or sales tax system is categorized as tax on sale (TOS) system in the book “Tax Inequality” because both system adds taxes on to the sale prices.

Every month entities submit monthly VAT or sales tax (TOS) returns to government, and the monthly GDP could be calculated by using GDP-by-tax approach (VAT returns). Other than VAT or sales tax (TOS) return, one more tax data is also submitted monthly to governments by entities. The tax amount in the wage payments; it is also submitted monthly to government.

In monthly VAT or sales tax calculation process, almost all of the accounting records belong to that month are reviewed. Therefore, it is easy to calculate—additionally—the total profit of those countries that are valid for GDP calculation (i.e. profit calculated without depreciation) and the total tax in cost (TIC) paid to government in those countries by the entities such as, property, import, license and other taxes in that month.

Total VAT or sales tax (TOS) return declared countrywide to government by entities for the current month (V)

TOS declared is the countrywide total of all;

  • VAT or sales tax returns declared to government.

If VAT or sales tax return summed up with the below items related to economic entities, non-profit entities, and not-for-profit entities then much more precise GDP figure can be calculated. These items are;

  • non-recurrent property tax on property sales,
  • stamp tax/duty on contract values, and so on
Total wages is the countrywide total wage amount declared to government by entities for the current month (W)

Wages is the countrywide total wage amount which is the sum of net wage, employee and employer portions of social security tax, health service tax and unemployment tax, income tax, and so on.

Total tax in cost (TIC) is the countrywide total TIC amount declared to government by entities for the current month. TIC is assumed to be calculated additionally by every entity during its VAT or sales tax (TOS) return process and declared to government (C)

(every entity sums up the TIC, which directly paid to government by these entities, such as the import related taxes, recurrent (periodic) property taxes for owned buildings, office spaces, vehicles, etc., various licenses and other taxes that must be paid by the entitiy to carry its business.)

The following method drives the profit amount from VAT returns it can be used in GDP equation:
Total sales is the countrywide sales amount excluding VAT or sales tax on the sale prices for the current month. Sales are assumed to be calculated additionally by every entity during its VAT or sales tax (TOS) return process and declared to government (S)

Sales excluding VAT or sales tax is the sum of all money receive by economic entities, non-profit entities, and not-for-profit entities via rent, interest, goods and services including durable goods (or goods that are subject to depreciation), donations, fund raising, fees and so on.

Total purchases is the countrywide purchases amount excluding VAT or sales tax on the purchase prices for the current month. Purchases are assumed to be calculated additionally by every entity during its VAT or sales tax (TOS) return process and declared to government (P)

Purchases excluding VAT or sales tax is the sum of all payments for rent, interest, goods and services including durable goods (or goods that are subject to depreciation), donations, fundraising, fees, and so on made by economic entities, non-profit entities, and not-for-profit entities.

GDP Profit (G) found by the people having access to monthly declared VAT return and Wage related databases by using Sales, Pruchases, Wages and TIC parameters is (G = S - P - W - C): 0

Now the profit amount found above could be used in GDP equation:

GDP of the month for the country is found by the people having access to declared VAT return and Wage related databases using the parameters given above is (GDP = G + C + V + W): 0

REMARK: Please note that the GDP result of the month in the above equation will be the official GDP figure at current prices. However, the GDP anounced by governments is yearly, which includes both official and unofficial GDP figures, and usually in constant prices.

SIMPLIFICATIONS...

In the above equations of GDP profit (G) and GDP (GDP), when the GDP profit parameter (G) is replaced by its equation, the following comes to fore… Now the profit amount found above could be used in GDP equation (GDP) becomes:

G = S - P - W - C
GDP = G + C + V + W
When G replaced with (S - P - W - C)
GDP = (S - P - W - C) + C + V + W
GDP = S - P + V

Therefore, during the VAT or sales tax (TOS) return process, additionally calculating the TIC parameter is not necessary, provided that the TIC items will not be included in sum of purchases (P) amount. Moreover, wage and wage tax declarations to government is not necessary.

The VAT or sales tax return (V) amount submitted to government is currently calculated by the nature of VAT or sales tax return process. Only the additional calculation of sales records and purchase records (both excluding VAT or sales tax amounts) during VAT or Sales Tax (TOS) return process is enough to find the monthly GDP of a country—out of the VAT return declarations of all entities in that country.

MORE SIMPLIFICATIONS...

If the sales records and purchase records calculation that is carried out additionally to calculate GDP (during the VAT or sales tax (TOS) return proces) includes VAT or sales tax amounts in the prices then the equation to calculate the monthly GDP of a country becomes;

GDP = S - P

Where,
S (sales) and P (purchases) includes VAT or sales tax amounts in the prices.

REMARK: Please note that the GDP result of the month in the above equation will be the official GDP figure at current prices. However, the GDP anounced by governments is yearly, which includes both official and unofficial GDP figures, and usually in constant prices.