NPI are defined as organizations operating without a profit making motive, that provide a service or benefit and have two or more full-time staff members. In terms of funding, such organizations are unable to cover all costs through income from the provision of services, and as a result it is expected that they make up for the gap in income through membership fees, donations, grants and income from assets. Organizations controlled by government organizations, or that receive a substantial portion of their income in the form of government assistance are excluded from this definition (they are classified as general government organizations).
Many nonprofit organizations conduct for-profit activities to finance nonprofit activities. Religious organizations operating venues for weddings and private schools running accommodation facilities are some typical examples. In such instances the SNA regards NPI as organizations existing primarily as the producers of nonprofit based services, which at the same time conduct for-profit activities as a sideline at different premises. Under this official guideline the scope of activities conducted by NPIs extends far beyond the production of nonprofit-based services, and as a result the scale of activities conducted is significant. However the separation of main activities from side activities often creates great confusion, and as a result the present Japanese SNA assumes that NPIs do not have offices defined as for-profit enterprises as NPIs, so that the scope of activities of conducted by NPIs corresponds to that of nonprofit service producers. Thus, whilst the guidelines separates these two aspects, the data treats them as one item.
As services provided by NPIs are directed to either households or to corporations, they are divided into two groups; nonprofit institutions serving households (hereafter shown as NPISH) and nonprofit institutions serving corporations. Organizations falling under the NPISH category include a part of private hospitals, private schools, labor unions, political parties, and religious organizations. Under the existing SNA, NPISH are treated as an independent category alongside households, non-financial incorporated enterprises, financial institutions and the general government. On the one hand, nonprofit institutions serving corporations include chambers of commerce, economic organizations, and industry based groups, however these groups are treated as non-financial corporations or as financial institutions.
2. The flow and stock of NPI
Figure 1 is a flow chart representing the activities of NPISH. The output of goods produced by for-profit companies can be measured by the prices of goods sold in the market. However the selling price of goods and services provided by NPISHs does not fully cover production costs, so that market prices are unhelpful as measures of NPISH outputs. As a result NPISH outputs are gleaned through production costs. Production costs consist of intermediate inputs as the costs of materials, and personnel costs or employee wages, fixed capital depreciation and indirect taxes. Unlike for-profit enterprises it is assumed that profits will not be made. (thus they are basically treated in the same way as government activities). The figure representing production costs less the interim investment costs is the gross added value produced through NPISH activity. Subtracting the fixed capital depreciation from this figure, we have the net added value.
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Products and services produced by NPISHs are of course sold to someone. For example, educational services provided by private schools receive remittance from households in the form of school fees. Such fees form part of total household consumption expenditure. When companies or governments dispatch staff on sponsored study leave, tuition fees paid by such organizations constitute intermediate consumption. As the total of these items is less than output, it is assumed that the NPISH consumes the difference in costs, hence these amounts represent the final consumption expenditure of NPISH.
In addition to relying on private donations and government grants as standard forms of revenue, NPISHs also generate receipts from assets through fund management. This income is used to cover expenditure on activities (grant making, provision of scholarship funds etc), and the remainder is accrued as savings (income and expenditure accounts).
