The 2,600-year-old agricultural tax is finally abolished 　　 　　Getting the balance right between rural and urban areas in the quest to achieve a harmonious society is something causing the Chinese Government sleepless nights.
　　In line with a resolution of the Standing Committee of the 10th National People’s Congress, China’s supreme legislative body, the country scrapped its agricultural tax from January 1, 2006.
　　In the middle of March 2004, Chinese Premier Wen Jiabao made a promise in his government work report to the annual session of the National People’s Congress that “agricultural tax is to be phased out within five years.” At the end of March 2004, the Chinese Government decided to repeal the agricultural tax in Jilin and Heilongjiang provinces on a trial basis and to reduce the tax rate in the country’s 11 major grain-producing bases. By early 2005, 28 of China’s 31 provinces, municipalities and autonomous regions had announced the exemption of agricultural tax. As a result, the Chinese Government has fulfilled its commitment to tax abolishment two years ahead of schedule.
　　“Issues related to agriculture, rural areas and farmers are the bottleneck in China’s economic and social development,” said Jin Renqing, Minister of Finance. “But the significance of agricultural tax exemption lies not only in the fact that it will help to promote farmers’ living standards and agricultural development, but also in its contribution to the country’s overall stability and the nation’s revitalization.”
　　
　　Widening gap
　　
　　Agriculture is a vital part of China’s economy and thus the agricultural tax is the government’s major financial source. Under the feudal system that was in place for 2,600 gears, the concept of “boosting agriculture and restraining commerce” was greatly encouraged by rulers of all dynasties, as at that time, almost all revenues was dependent on agriculture-related taxes.
　　After the People’s Republic of China was founded in 1949, China was keen to develop its industry. As a result, it was decided that the agricultural sector must support the industrial sector unconditionally. The agricultural tax remained a major financial revenue contributor. Statistics show that during the early years of the People’s Republic’s founding, 39 percent of state revenues came from agricultural tax. During the 52 years from 1949 to 2000, Chinese farmers handed over 700 billion kg of grain to the state.
　　This situation gradually led to a large gap between rural and urban areas. At the initial stage of industrialization, centralized resource distribution, under the planned economy, was carried out to save on costs of industrial development. For example, since 1953, the Chinese Government had monopolized the purchase and marketing of grain and cotton. Through this system, farm produce was purchased at low prices and then supplied to industry as raw materials. But at the same time, farmers have to buy chemical fertilizers and other industrial products at high prices. This, together with losses resulting from low prices of farming products, is a double whammy. It is reported that during the monopoly years from 1953 to 1985, Chinese farmers made a contribution equal to between 600 billion-800 billion yuan ($75 billion-$100 billion) to the country’s industrial sector.
　　Some experts estimate that the actual income of urban residents is five times as much as that of their rural counterparts. In terms of social status, farmers, who compose the majority of the country’s population, are a very vulnerable group. Consequently, China is now faced with the embarrassing situation of having inadequate domestic demand, while vast rural areas lie undeveloped.
　　
　　Small individual savings
　　
　　Long-term economic growth and social stability demands that China correct its segregation policy in rural and urban areas and the present socioeconomic structure provides ample opportunities to remove this unequal practice.
　　At present, primary, secondary and tertiary industries respectively account for 13 percent, 46 percent and 41 percent of the country’s aggregate economic volume. This proves agriculture has dropped to third place in China’s economic structure. According to official statistics, in 2004, agricultural tax only made up 0.92 percent of state revenues, while in 2005, the gross agricultural output value contributed to by 70 percent of the country’s population only made up 13.2 percent of the year’s GDP. Agricultural tax is no longer the country’s major source of financial revenues.
　　Under the current system, since tax exemption, relatively developed eastern coastal areas will not enjoy subsidies from the Central Government, but grain-based and economically less developed areas in central and western areas, where agricultural tax was an important pocketbook of local revenues, will be subsidized through the Central Government’s transfer payment. In 2005, the Central Government provided a transfer payment of 66.4 billion yuan ($8.3 billion) or so to local governments. In 2006, the Central Government is expected to raise this transfer by 1.5 billion yuan ($187.5 million) after abolishing the agricultural tax, which it can handle with ease after hauling in revenues of 3 trillion yuan ($375 million) in 2005.
　　In fact, recent years have seen farmers receive increased payouts from the Central Government, up 50 percent from 2002 to 2005. It was clearly put forward by the State Council, China’s cabinet, in the National Agriculture Working Conference at the end of December 2005 that the Central Government would gradually increase its financial support to agriculture in the coming years.
　　At the same time, the State Council determined that since 2006, tuition and fees for the nine-year compulsory education (six years’ primary school and three years’ junior middle school) will be totally exempted in western provinces’ rural areas, a policy that will begin to benefit central and eastern areas from 2007. In the next five years, from 2006, central and local governments will input a total of 218.9 billion yuan ($27.36 billion) to compulsory education in rural areas.
　　On average, the overall exemption of agricultural tax is not likely to bring tangible benefits to farmers. According to experts’ estimation, the tax exemption will relieve farmers of a total burden of more than 100 billion yuan ($12.5 billion) annually. Yet when it is broken down into individual benefits, China’s 800 million farmers will only score a savings of 120 yuan ($15) each. A small amount, yet still good news when considering the per-capita cash income of farmers was only 2,936 yuan ($367) in 2004. Actually, this tax cut is not the most important contribution of the tax exemption policy.
　　“The significance of the tax exemption does not lie in the burden reduction, but more importantly, it has changed farmers’ unequal status in society,” said Xu Hongyuan, a scholar from the State Information Center.
　　According to Wan Baorui, an expert on agriculture and former Vice Minister of Agriculture, the tax exemption has remodeled the country’s traditional structure of primary, secondary and tertiary industries and ushered in the era of “industry back-feeding agriculture.”
　　Agriculture had long been a focus of attention in China’s ancient agrarian society, but what mattered to the authorities in the past was farmers’ productivity, which was the basis of taxes, but not farmers’ interests.
　　“The tax exemption is a reflection of the Chinese Government’s concern for farmers’ interests and also shows the progress made in this new era,” said Zeng Yesong, an expert on agriculture in the Central Party School of the Communist Party of China, a institution for the Party to train high-level officials.
　　
　　Removing barriers
　　
　　At the same time, some believe that the agricultural tax abolishment is merely one of the steps to overcome the country’s tough problems related to agriculture. Realistically, several other factors remain.
　　As mentioned above, because the agricultural tax was the most important part of the governments’ revenues in some less developed areas, now that it is repealed, grassroots governments may encounter severe challenges. Currently, debts at township and village levels amount to as much as 600 billion yuan ($75 billion), but China still lacks an effective method to solve this debt and curb fiscal risks.
　　In some impoverished areas in western provinces, most township and county governments have to earmark a large proportion of the budget for salaries. Therefore, although the Central Government will increase the transfer payment to these regions after the agricultural tax exemption, daily administrative expenses are still a problem. Thus, without a large-scale institutional reform focusing on government streamlining, it’s still possible for farmers to once again be subject to all kinds of arbitrary charges. Based on past experience, the agricultural tax is not the major burden on farmers’ shoulders, but rather various fund collections in the name of agricultural tax.
　　As a matter of fact, this problem has already emerged in some places. For example, in some counties in Henan Province, although farmers have been exempted from the agricultural tax, they are asked to pay considerable fees for various certificates, such as marriage certificates and permits for working in cities. Local governments take these off-budget revenues as compensation for administrative fees.
　　Another problem is that even if the Central Government means to increase the transfer payment to rural areas, it may face pressures from other aspects, which is likely to result in the failure or ineffective implementation of the budget plan. The major reason is that farmer representatives have very limited seats in the legislative institutions in charge of affairs related to the fiscal budget-people’s congresses at all levels. In this case, farmers’ rights and interests are seldom taken into consideration when it comes to the distribution of the fiscal budget. Therefore, it is suggested that more seats should be reserved for farmer deputies, as only when farmers are entitled to have a say in local fiscal budgets can the Central Government’s supportive measures to agriculture become effective.
　　However, it is indicated by a number of experts that it’s out of the question for the state to provide subsidies to farmers, as China has too large a population engaged in agriculture. So far, the most effective way to solve problems involving agriculture, farmers and rural areas is to transfer more farmers from the farming sector to non-agriculture sectors and from rural to urban areas. Therefore, the Chinese Government is faced with an immediate task to remove barriers between rural and urban areas, so as to ensure rural residents equal rights with urban residents.
　　

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