Tax reform to help farmers

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Last updated at: (Beijing Time) Tuesday, November 25, 2003

Tax reform to help farmers

China is considering a unified tax system for its rural and urban areas to further alleviate farmers' tax burden.

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China is considering a unified tax system for its rural and urban areas to further alleviate farmers' tax burden.

The move comes as the income gap between rural and urban dwellers continues to widen under a tax system many consider unfair.

The country has different tax systems for cities and rural areas.

In cities, taxes are usually levied on net profits and not on costs. That means some costs are deducted before individuals or companies are taxed. For example, city dwellers only start to pay income tax when they earn more than 800 yuan (US$96.7) on average.

But in rural areas, the agriculture tax levy, for example, is based on grain production, no matter how much farmers have invested.

"The tax systems are unfair for farmers," said Ni Hongri, a senior researcher with the State Council's Development Research Centre.

Meanwhile, the income gap between farmers and urban dwellers has widened in recent years.

Per capita income in cities was 2.5 times higher in 1998 than in rural areas, according to figures from the National Bureau of Statistics.

By 2002, city dwellers earned 3.3 times as much.

Zhang Peisen, a senior expert with the Taxation Research Institute under the State Administration of Taxation said: "If the tax departments set a tax threshold for farmers as they do for city dwellers, most farmers won't need to pay taxes."

The reality is that farmers pay higher taxes than ordinary city dwellers, Zhang said.

A unified tax system is in line with the principle of fair taxation for all, both Zhang and Ni agreed.

Finance Minister Jin Renqing said last week China would push forward the "fees-for-tax" reform in rural areas.

Based on the reform, the country would gradually lower the agriculture tax rate and create conditions to unify the tax systems.

The "fees-for-tax" reform is aimed at alleviating the tax burden of farmers thus helping boost their income.

The reform started on a trial basis in East China's Anhui Province at the beginning of 2000 and helped alleviate farmers' tax burden by more than 30 per cent. It has since spread across the country.

Today, Chinese farmers pay three major taxes-agriculture tax, tax on special agricultural produce and tax on slaughtering animals.

An official with the Ministry of Finance said the country is considering abolishing tax on special agricultural produce next year, which will further reduce farmers' tax burden.

The government is also considering gradually lowering the agriculture tax rate, which stands at an average of 8.4 per cent now, the official said.

"When the time is ripe, the country will unify the tax systems in the rural and urban areas," he said.

But Ni said this would take a long time.

"Unifying the tax systems will have to take into consideration the overall economic situation," she said.

Only when the gap between the cities and rural areas narrows following the deepening of the country's urbanization process, can a unified tax system be put into practice, she said.

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