Gross Value Added and Gross Operating Surplus are sometimes expressed at Factor Cost, and sometimes at Basic Prices. Gross Value Added is also sometimes given at Market Prices. The Basic Price is the amount of money actually received and kept by the producer. It includes non-product taxes on production. These are taxes, such as local authority Commercial Rates which are paid irrespective of the quantity of goods or services produced (in contrast to product taxes like VAT which are calculated based on the quantity sold). The Basic Price excludes non-product subsidies received by the producer. These subsidies, for example farm modernisation subsidies, are received irrespective of the quantity of goods or services produced.
In the Income Method estimates in National Accounts, Gross Operating Surplus is calculated first at Factor Cost, and then non-product taxes are added, and non-product subsidies are subtracted to get Gross Operating Surplus at Basic Prices. Gross Value Added at Basic Prices is then calculated as Gross Operating Surplus at Basic Prices plus Compensation of Employees.
Gross Operating Surplus at Factor Cost is generally significantly larger than non-product taxes or subsidies and so the transition to Basic Prices from Factor Cost is generally only an adjustment of around 1%.
Basic Prices can be Current Price or Constant Price. Constant Basic Prices have been adjusted for inflation, while Current Basic Prices have not been adjusted for inflation.
The relationship between Factor Cost, Basic Prices and Market Prices is shown in the figure.
