Indirect Tax

Indirect taxes are taxes imposed on the production, sale, or consumption of goods and services. Examples of indirect taxes include sales tax, value-added tax (VAT), excise tax, and customs duties. These taxes are levied by the government and are ultimately passed on to the consumers in the form of higher prices for goods and services.

Deduction from NNP to arrive at NI

Net National Product (NNP) is a measure of the total market value of all final goods and services produced by the residents of a country in a given period of time, minus depreciation. It represents the income generated by a country's residents from their productive activities.

Net Income (NI), on the other hand, is a measure of the income earned by individuals and businesses within a country. It is calculated by deducting certain items from NNP, including indirect taxes.

Indirect taxes are deducted from NNP to arrive at NI because they represent a transfer of income from the producers to the government. When producers pay indirect taxes, their profits are reduced, and the burden of the tax is ultimately passed on to the consumers in the form of higher prices. Therefore, the income that would have been earned by the producers is effectively transferred to the government.

By deducting indirect taxes from NNP, we are able to calculate NI, which represents the income that is actually received by individuals and businesses within the country. This allows for a more accurate measurement of the income generated within the economy.

It is important to note that other items are also deducted from NNP to arrive at NI, such as capital consumption allowance (depreciation), subsidies, and interest. These deductions are made to account for the depreciation of capital assets, the government's financial support to certain industries, and the income earned from lending or borrowing, respectively.

In conclusion, indirect taxes are deducted from NNP to arrive at NI because they represent a transfer of income from producers to the government. This deduction allows for a more accurate measurement of the income earned by individuals and businesses within the country.