The correct option is 1 and 3 only.
Explanation
In National Income Accounting, the relationship between various aggregates is determined by the treatment of taxes and subsidies. Under the methodology adopted by the Central Statistics Office (CSO) in 2015 (aligned with the System of National Accounts, 2008), a distinction is made between Production Taxes and Product Taxes.
- Production Taxes/Subsidies: Paid or received in relation to production and are independent of the volume of production (e.g., land revenue, stamp duty, registration fees).
- Product Taxes/Subsidies: Paid or received per unit of product (e.g., GST, excise duty, customs).
Statement 1 is Correct
Gross Domestic Product (GDP) at Market Prices is derived from Gross Value Added (GVA) at Basic Prices. GVA at Basic Prices represents the value added by producers before product taxes are added (or product subsidies subtracted). To arrive at the market price (the price paid by the consumer), Net Product Taxes (Product Taxes minus Product Subsidies) must be added.
Formula: GDP at Market Prices = ∑ GVA at Basic Prices + Net Product Taxes.
Statement 2 is Incorrect
GVA at Basic Prices is derived from GVA at Factor Cost. To move from Factor Cost (cost of factors of production) to Basic Prices, Net Production Taxes (Production Taxes minus Production Subsidies) are added. Therefore, Net Production Taxes are included in GVA at Basic Prices, not excluded.
Formula: GVA at Basic Prices = GVA at Factor Cost + Net Production Taxes.
Statement 3 is Correct
Factor Cost represents the actual cost of the factors of production (land, labor, capital, entrepreneurship) without the distortion of any taxes or subsidies. Since GDP at Market Prices includes both Net Production Taxes (via Basic Prices) and Net Product Taxes, one must subtract both to arrive back at Factor Cost.
Formula: GVA at Factor Cost = GDP at Market Prices - Net Product Taxes - Net Production Taxes.
Key Takeaway
The hierarchy of National Income aggregates is:
Factor Cost + Net Production Taxes → Basic Prices + Net Product Taxes → Market Prices.