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Agricultural tax to be phased out in 5 yrs
(China Daily)
Updated: 2004-09-11 09:27

Farmer Lu Shoutang in Hebei Province has a lot of reasons to be cheerful. This year's summer harvest has been better than any previous year's, and not just because of the weather.

One day as the family was busy reaping corn, news came in that the government had cut agricultural tax by half, from 4 per cent to 2 per cent, and raised the retail price of grain by 60 per cent, to 1.5 yuan (0.18 US cents) per kilogramme.

"From the summer harvest alone, we made a few hundred yuan in extra income," said Lu, who owns a farm plot 6.5 mu (0.43 hectares) in size. "The sum is by no means small for us. Last year, what we made from crop farming barely covered the cost of production."

The Lus live in a village called Liujia on the North China Plain, one of China's "bread baskets." Most households there live from the proceeds of two crops a year, customarily wheat in the summer and maize in the autumn. Like the Lus, they are benefiting from recent government incentives, which are meant, above all, to ensure there is enough food in the most populous country in the world.

In the late 1970s, China's rural population started on its sweeping reforms, which enabled them to become independent producers for the first time since the agricultural collectivization movement in the mid-1950s.

A new system has since then held sway all over the country, under which rural households are basic units of rural production and, as such, keep whatever is left of their harvests after paying taxes to the government and a fee to their villages.

The rural reform was to expand into cities, culminating in a nationwide drive to make the entire national economy market-oriented.

Rural people are the first to have benefited from the reforms, which were devised by late leader Deng Xiaoping, who was commemorated on the centenary of his birth this August.

As the reforms developed in scope and depth, China's grain production increased steadily and, in the mid-1980s, the government was able to lift food rations which had been imposed on the entire Chinese population in the 1950s.

Giving more while charging less

Between 1994 and 1998, China reaped five successive good harvests and its grain output reached an all-time 540 million tons, averaging 350 kilos for each person.

Gleeful officials told the world that China had become essentially self-sufficient in food supply, even producing a surplus in good crop years.

The good times did not last long. In 2000, grain production started dropping, slumping to 431 million tons by 2003.

Officials and experts cite a number of factors that could jeopardize China's internal food supplies.

One is the pace at which farmers' incomes are rising relative to their urban compatriots'.

The National Bureau of Statistics says net incomes for the rural population increased by 69.7 per cent between 1990 and 2002, averaging 4.45 per cent a year, in comparison to 138.3 per cent, or 7.5 per cent a year for the urban population.

The income gap between China's urban and rural population is still getting wider.

In 1985, disposable incomes for the urban population were 1.89 times those of the rural population. By 2003, the disparity had jumped by another 3.1 times.

This state of affairs was definitely detrimental to China's agricultural development, food production in particular.

The problem was that the cost of producing the food outweighed the price the goods sold for. In Sichuan, one of China's largest agricultural provinces, a typical farmer made up to 114 yuan (US$14) in gross income from rice grown on one mu (1/15 hectare) of land in 2002.

But the net income was a mere 12 yuan - approximately US$1.5 - after production costs were deducted.

As Lu Shoutang in Hebei Province put it, "Who would grow crops when you have nothing to gain, or even worse, you lose money?"

China's authorities have lost no time trying to meet the challenge.

The CPC Central Committee and State Council jointly issue a "No 1 Document" at the start of every year.

Themed "Giving more while charging less," this year's document is devoted exclusively to policies aimed at helping farmers increase their incomes.

It calls for direct subsidies to grain producers in 13 major grain-producing regions, averaging 300 yuan (US$36.275) per hectare.

And from this year, agricultural tax will be reduced by one percentage point each year to be revoked once and for all in five years' time.

"Special agricultural products" - with the exception of tobacco and including things like fruit and mushrooms - are now all exempt from tax.

The central government has earmarked funds to make up possible shortfalls in local government revenues, through what is known in China's official terminology as "transfer payments."

The result has been immediate. On July 16, when the summer harvest had just ended in most parts of China, the State Bureau of Statistics announced that grain production had begun picking up and that the year's grain output would reach 455 million tons - 24 million tons more than in 2003.

The bureau also reported that net incomes increased by 7.8 per cent year-on-year for China's rural population in the first six months of 2004, the fastest growth in the past two decades.

Curb on development zones

Dwindling acreage sown for crops is another factor that has caused China's grain production to drop.

One senior official in the Leading Group for Economic and Finance Affairs under the Central Committee of the Communist Party of China says the country once had about 1.7 billion mu (113 million hectares) of arable land. By 2002, this had shrunk to 1.49 billion mu (99.33 million hectares).

"This is a big problem for China," said Chen Xiwen, deputy director of the group's General Affairs Office. "The country has limited land resources, relative to its population."

Chen and other officials interviewed by China Features said the land had been taken by local governments for building projects and "development zones," which seem to have sprung up like mushrooms. "Development zones have played an important role in attracting foreign capital," Chen said. "The problem is that local governments are too enthusiastic about them. Many of the so-called 'development zones' exist only in name and the last tracts of farmland have been laid waste because no company, foreign or Chinese, ever actually invested."

The central government has reacted by launching a nationwide campaign to put things right.

Teams of officials from the Ministry of Land Resources and four other departments under the State Council were sent out to all parts of China for on-the-spot investigations, examining the actual conditions of each zone. By mid-July, 6,741 zones had been looked at.

The investigators found that the zones took up an incredible 37,500 square kilometres - more than the combined area of urban centres across China, which is 31,500 square kilometres.

The State Council has ordered 4,735 of zones to be shut down, more than 70 per cent of those looked at.

The land will be returned to agricultural use as far as possible, and in fact officials at the Ministry of Land Resources say crop farming has already resumed on 1,324 square kilometres.

The central government is also getting tougher in handling cases involving illegal requisitions and trading of land.

More than 32,500 such cases are being investigated, which together involve 21,700 hectares of land - more than 13,300 hectares of which is farmland.

Back in the 1950s, the Chinese Government set in stone the principle of "taking agriculture as the foundation of the national economy." "China has changed beyond recognition over the decades," said Chen Xiwen. "But this policy must continue, given the size of the Chinese population, and the vital need to safeguard the country's food supplies."

He said the latest policy measures to encourage grain production fall in line with the principle "taking agriculture as the foundation of the national economy."

Lu Shoutang, our Hebei farmer, may not be familiar with buzz phrases like "food security," but he does know that thanks to the latest policy measures, grain production is now profitable and should become more so in the coming years.

"Folks here are expanding the acreage sown to wheat, maize and other food crops," he told China Features. "Crops are now grown even on the village flood plain."

Agricultural tax to be phased out in 5 yrs

With the commitment made by the Chinese Government to farmers, agriculture and rural areas, the country's 800 million farmers' payment of agricultural tax based on the number of their families and cropland acreage is about to be phased out.

Premier Wen Jiabao announced on March 5 that agricultural tax will go altogether in five years. People from all walks of life across China have applauded the move.

In his government work report to the annual session of the country's top legislature, Wen said, except for tobacco, the tax on special agricultural products will be rescinded in 2004, and the overall agricultural tax rate will be reduced by over 1 percentage point each year.

Agricultural tax will be rescinded in five years.

By 1 per cent reduction in agriculture tax, farmers' burdens will be reduced by as much as 11.8 billion yuan (US$1.42 billion) this year.

"People say it's a backbreaking job to grow grain crops, but after a year's toil and sweating, grain farmers hardly earn any money," said Bai Guiru, a woman peasant farmer from Jituo village of Laoting County, in North China's Hebei Province, "These words of the premier's mean so much to us."

The Chinese Government's decision is based on prolonged, serious study and deliberation by the central leadership.

President Hu Jintao braced heavy snowfall to visit farmers' and herdsmen's homes shortly after he assumed his presidency at the beginning of 2003.

The sixth "No 1 Document" relating to agriculture was issued early this year after 18 years.

Other senior officials also trekked to rural areas to go among the masses of farmers to look into ways of coping with long-standing problems hampering the development of China's rural areas.

Two central government conferences on issues relating to agriculture, rural areas and farmers were convened in the past year. This year's No 1 Document was also centred on the same issue.

Hail from experts

Even sober-minded experts and scholars spoke highly of the government's resolve to help farmers ease their financial burden.

"For the past 2,000-plus years, Chinese authorities had given top priority to agriculture, but what they did aimed to increase farmers' productivity instead of protecting their interests," said Zeng Yesong, an agriculture expert with the Party School of the Communist Party of China (CPC) Central Committee.

"Beyond any doubt, the rescindment of agricultural tax will be a direct subsidy for farmers and constitute a new approach of the government to boost agriculture," the expert told Xinhua.

This new policy is of great significance to China's grain safety as it will encourage farmers to produce more, said Liu Liren, director of the Agricultural and Forestry Bureau in East China's Jiangsu Province.

With his in-depth understanding of the related policy, Li Yuanchao, secretary of the CPC Jiangsu provincial committee, said that the government is carrying out the principle of "Put People First and Centre on the People," to offer farmers a golden opportunity.

China is one of a few countries in the world that levy agricultural tax.

Premier Wen's announcement has also aroused interest among diplomatic envoys of other countries in China.

Azerbaijani Ambassador to China Yashar Aliyev acknowledged that China's reform began with the agriculture sector, and the tax-cutting scheme would once again determine the orientation for the country's economic and social development in the years ahead.

According to media reports, agricultural tax rescindment has already been enforced by the municipal governments of Beijing and Shanghai and East China's Zhejiang Province.

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