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Tax-for-Fees Reform Revives Rural Economy

The unprecedented reform to turn fee payment to tax in the rural areas in east China's Anhui Province and other provinces has brought about a positive results.

The Chinese government decided last March to conduct the tax-for-fee reform, aiming at easing the farmers' financial burden, in some parts of nine provinces and autonomous regions, including the whole eastern province of Anhui, where a group of villagers initiated a far-reaching household contract system over 20 years ago when China was planning to adopt reforms and opening up in the late 1978.

China is a big agricultural country, and some 900 million people live in the countryside. In addition to their legal taxes, farmers have been disturbed with increasing fee-charges, fund- collecting programs and fines under various pretexts by local administrations.

A survey shows that, before the reform, 1.1 million farmers in Huaiyuan County in Anhui alone had to pay 80.8 million yuan (US$9.7 million) in fees per year, or three times as much as their annual legal taxes of 26.6 million yuan.

In order to lighten farmers' burden, the State Council issued orders in 1992 and 1996 to check fee rates and set the ceiling for the rate at no more than 5 percent of the farmers' annual net income.

But according to latest inspection of the Ministry of Agriculture in 100 counties nationwide, farmers in some places saw such payments rise in 2000, with per capita taxes and fees going up 6 percent and the increasing fee-charges, fund collection and illegal fines rose by as much as 21 percent.

As planned in the initial reform, Anhui farmers' total payment of taxes and surtaxes have been reduced to 3.8 billion yuan (US$457 million). Including the abolition of the slaughter tax and fund-raising for education, the tax payment of the farmers was 1.7 billion yuan less than previous years, or 31 percent down, according to Wang Taihua, governor of the province. This means that each farmer will pay 34 yuan less, Wang added.

The province has abrogated 50 items for fee collection, and has basically kept the willful fee charges, fund collecting and fines under control, Wang said.

Meanwhile, the tax-for-fees reform has helped stimulate domestic demand.

The Chinese government has adopted positive financial policies in recent years, hoping to expand domestic demands and keep sustained economic development.

The central government pointed out in a guidance document that "if farmers' purchasing power is not increased, the policy of expanding domestic demand will not have the anticipated effect."

Vice-Premier Wen Jiabao said that it is impossible to realize China's modernization without sustainable development of the country's economy and a steady increase in the incomes of its millions of farmers.

Wen Tiejun, economist and deputy secretary of the China Research Institute for Reconstructing the Economic System, said, " The overall national economy will be greatly affected if the incomes of the 800 million farmers does not grow. We need to increase farmers' incomes so as to expand domestic demand, because they are the largest consumer group in China."

Undoubtedly, tax and fee cutbacks mean an income increase for farmers. In Anhui, for example, the reduction of a total of 1.69 billion yuan (US$205 million) in fees has added local farmers' income. Statistics show that in the provinces of Heilongjiang, Henan and Hunan, the reform has resulted in fee abatement at an average rate of 30 percent.

Experts pointed out that if the reform were adopted nationwide, Chinese farmers as a whole would increase several billion US dollars in their annual income. Their purchasing power would therefore be enhanced, so that they would buy more agricultural means of production and consumer goods, which would push the development of the relevant industries, the experts said.

The reform is also helpful for the improvement of relations between farmers and local governments, and maintaining social stability in the countryside.

Before the reform, due to heavy financial burdens and slumping agricultural products, farmers' income decreased for a consecutive four years from 1996 to 2000.

Because of unreasonable charges, fines and fund collection, there are some conflicts between farmers and local authorities.

After the reform was implemented in Anhui Province, however, farmers volunteered to pay taxes, or even remitted cash back home for tax payment from cities where they were employed.

Many places in Anhui have set up tax-collecting offices to facilitate farmers for tax payment.

Senior officials noted that the reform liberated local officials from collecting fees from farmers and gave them more time to serve local farmers.

(Xinhua 02/23/2001)

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