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Chinese Farmers See Tax Burden Lighten

Revenue: Experimental program of cuts, slated to expand, eliminates arbitrary levies and streamlines fees for government services.

July 22, 2002|ANTHONY KUHN | SPECIAL TO THE TIMES

XIBU TOWNSHIP, China — Despite widespread insolvency among local governments struggling to provide basic services, Beijing will extend a bold program of rural tax cuts to more than half of the country's provinces this year.

Throughout China's history, extracting tax revenue from an agriculture-based economy without igniting peasant rebellions has been a crucial challenge in ruling the nation's vast hinterlands.

Anhui province, which two decades ago pioneered the reforms that brought an end to the nation's communes, started the experiment in 2000. It will be expanded to 19 provinces this year, officials say.

The reforms appear to have scored some initial successes and pleased farmers.

"In the past, we used to dodge our local officials. They only showed up when they wanted money," farmer Sha Longfu said as he stood in line to pay taxes at this township's new tax collection office.

Farmers who willingly bring their taxes to the government are rare in Chinese history.

A sign on the wall of the tax office reminds people of how officials used to extract taxes from recalcitrant households. Tax officials, it says, may no longer "send police into farmers' houses to seize grain, drag off farm animals, move away furniture or collect agricultural taxes by force."

Anhui farmers' per capita income averages $158 a year, and Beijing has mandated that tax burdens must not exceed 5% of that.

But many township and village levies are as high as three times the legal tax rate.

Some of these fees fund needed services such as education and health care. Others subsidize official wining and dining and infrastructure projects with little use aside from burnishing officials' public images. Many levies bear fancy names that offer no clue as to how farmers' money is being used.

Faced with unbearable tax burdens, Anhui farmers have in the past mounted violent resistance, committed suicide or moved to other areas.

Under the reforms, some of the local fees have been absorbed into a higher but standardized agriculture tax, totaling $6 billion a year. This will be paid to the central and provincial governments, which will then reallocate $3 billion to townships and villages for specific uses.

Officials claim that since the reforms were launched, the average annual tax burden on farmers is down about 30%, from $13 to $9 per person, not counting the far greater illegal levies, which were abolished.

"Now they don't dare to impose arbitrary levies on us," said Sha, the farmer, displaying an official notice that clearly lists the taxes he has to pay this year. He can now refuse to pay any fee not on the list.

In another landmark step, next year Anhui will abolish the burdensome requirement of unpaid labor--fixing roads, dikes and bridges--that local governments for centuries have forced upon peasants.

The downside of the reforms is that local governments, which were deep in debt before the changes, are hard-pressed to provide basic services.

According to Anhui officials, the reforms have cut provincial revenue by $210 million. An additional $490 million in illegal local education fees and $240 million in unnecessary infrastructure projects were also scrapped. Central government subsidies of about $210 million did little to cover township and village deficits.

Anhui, with a population of 63 million, has roughly 30,000 villages. According to state media, each requires about $4,800 a year to cover official payrolls and expenses. But the average village's tax take in 2000 was only $3,600.

Since the budget cuts, local officials "aren't getting by comfortably," Anhui Deputy Gov. Zhang Ping said, but government offices and schools are still able to function without increasing taxes.

"With the budget shortfalls, local governments are operating at a very low level of efficiency," acknowledged an Anhui official working on the reforms.

Zhang said that since the reforms cut its revenue, Anhui has had to lay off about 30,000 civil servants and 110,000 "temporary" local officials.

The "temporary" officials are mostly farmers for whom friends and relatives have arranged salaried posts in local government.

The poorer the region, the more officials there are, because there are no industries to absorb surplus farm labor.

For centuries, China had no local government below the county level. Local gentry and clan patriarchs governed the empire's myriad villages.

To extend their control down to society's grass roots, the Communists set up village and township governments. But these had no authority to collect taxes until 1979 and 1985, respectively.

After that, local government payrolls ballooned, and China now has more than 13 million officials at or below the county level whose salaries must be paid by farmers' taxes.

Many experts remain skeptical about the fate of the reforms. They advocate abolishing agricultural taxes, because farming is too unprofitable given China's scarce land per capita and inefficient production methods.

The experiment "is just the latest round of reforms similar to those implemented by China countless times throughout its history," Qinghua University historian Qin Hui wrote in China Reform magazine.

Qin argued that, although the reforms scored initial successes, peasants have tended to forget which fees were replaced by the flat tax, allowing officials to reimpose the levies under new names. Qin added that to truly modernize its rural tax system, China must establish a graduated tax rate based on income. For centuries, rural taxes have been assessed according to population and farm acreage, penalizing grain growers.

More important, he wrote, farmers' tax obligations must be balanced by more political rights.

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