Ten Years of Reform in Rural Taxes and Fees

From: English Edition of Qiushi Journal Updated: 2011-09-21 09:18
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 China began to reform its rural tax and fee system in the year 2000. Guided by the policy of giving more, taking less, and loosening control, extraordinary progress has been made in the reform of rural taxes and fees over the past decade. Since then, agricultural taxes have been totally abolished, various policies to strengthen agriculture and benefit rural residents have been introduced in a concentrated manner, and efforts to develop innovative rural systems and mechanisms have been accelerated. These initiatives have done a great deal to boost rural incomes, promote agricultural development, and bring prosperity to rural areas.

 I. Reform of rural taxes, fees and modes of distribution

 In search of a fundamental policy to relieve the burdens of rural residents, the CPC Central Committee gradually shifted the emphasis of its rural initiatives from the tackling of unauthorized fees and fines to lighten the burden on farmers to the reform of taxes and fees during the 1980s and 1990s. In September 1998, a task force for the reform of rural taxes and fees was established under the State Council. In March 2000, reforms of rural taxes and administrative fees were implemented throughout Anhui Province on a trial basis, and were subsequently launched on a nationwide scale starting in 2003. Reforms covered several aspects: first, abolition of administrative charges and the practice of raising government funds and pools from rural residents, including overall township planning fees and the pooling of funds for rural education; cancellation of animal slaughter tax; and gradual rescindment of uniform provisions on accumulative labor services and voluntary labor services; second, revision of policies for taxes on agriculture and special farm produce; and third, reform of provisions for the use of fees retained by villages. Taking reforms a step further, the CPC Central Committee committed to the abolishment of agricultural taxes within five years in 2004. According to the decision, the initiative would begin with preliminary trials in the provinces of Heilongjiang and Jilin. The decision was also made to cancel the taxation of special farm produce on a nationwide basis, with the exception of tobacco. On December 29, 2005, the Nineteenth Session of the Standing Committee of the Tenth National People’s Congress decided to nullify the Regulations on Agricultural Tax as of January 1, 2006. This historic decision marked the end of agricultural taxation in China, whose roots can be traced back more than 2,600 years. It also meant that China’s efforts to reform rural taxes and fees in that phase had achieved their intended results, and that the focus of efforts would shift toward the comprehensive reform of rural areas. 

 China abolished agricultural tax in 2006, ending a long history of taxation on farming in China. This reform is expected to reduce the financial burden on rural residents by 125 billion yuan per year. /Photo by Xinhua

 This six-year reform effort was remarkably successful in a number of aspects. First, reforms were successful in significantly relieving the burdens of rural residents. According to statistics, the total abolition of agricultural tax in 2006 has allowed China’s rural residents to save 125 billion yuan in tax payments per year compared to 1999, equating to a reduced annual burden of 140 yuan per capita. Second, schemes to coordinate the development of urban and rural areas were propelled forward by the reforms. From 2000 to 2006, a total of 263.4 billion yuan in central budget expenditure was assigned to rural areas to support the reform of taxes and fees. At the same time, local governments also increased their expenditure in rural areas accordingly. Third, the reform of rural taxes and fees also spurred forward changes in rural systems and mechanisms. Following the reform of rural taxes and fees, local authorities actively engaged in a series of complementary reform initiatives oriented towards rural organizations, compulsory education, and financial management in counties, towns, and townships. These reforms led to profound changes in China’s rural superstructure. Fourth, the mode of conducting trial reforms on a small-scale basis before widespread implementation allowed for problems to be discovered and policies to be refined during the reform process, which helped to ensure social stability in the rural areas. 

 II. Increased government support and rapidly expanding public finance 

 Owing to the reforms made over the past decade, the government now levies less from China’s rural residents in the form of taxes and fees, in some cases taking nothing at all. At the same time, government expenditure in agriculture, rural areas, and rural residents has increased on a constant basis. Expenditure in agriculture, rural areas, and rural residents from the central budget has increased from 214.42 billion yuan in 2003 to 857.97 billion yuan in 2010, registering an average annual growth rate of 21.9%.

 1. Rural incomes have been increased. By the end of 2010, direct subsidies for grain production, general subsidies for agricultural supplies, subsidies for planting superior seed varieties, and subsidies for the purchase of farm machinery and tools reached 508.89 billion yuan in total. The range of subsidized varieties and the scope covered by subsidies have been gradually expanded, while management methods have been continuously improved. At the same time, minimum prices for the purchase of principal farm produce have been raised by a significant margin in order to protect the interests of grain producers. These policies have increased rural incomes by offering a greater incentive to produce grain.

 2. Rural productivity has been raised. During the period from 2001 to 2010, the government backed an 18.7 million hectares scheme to renovate low and medium-yield farmland and cultivate high-yield farmland. In addition, the government has also supported the construction and resumed construction of 416 water conservancy projects for medium-scale irrigated areas and provided additional or improved irrigation over an area of 16.7 million hectares. These initiatives have helped to increase China’s comprehensive grain production capacity by 36.45 million tons. Financial services in rural areas have been constantly improved. Trials for government subsidization of agricultural insurance premiums have been expanded to cover 29 provinces. Owing to this scheme, more than 390 million rural households are now covered by agricultural insurance, with the total secured risk exceeding 1.1 trillion yuan. The scale of special funds for the development of modern agricultural production has been increased, and active steps to create innovative mechanisms for the management and use of such funds have been taken. This has promoted the rapid development of industries with particular strengths and unique features in different parts of the country. Public finance has also played an increasingly large role in poverty alleviation and development. The number of rural people living in poverty has reduced from 94.23 million in 2000 to 35.97 million in 2009. Marked results have also been achieved in the construction of infrastructure and the development of industries with particular strengths and unique features in impoverished areas.

 3. Social programs in rural areas have progressed at a faster pace. Reform targets to ensure sufficient funding for compulsory education in rural areas have been fully attained, and policies to offer financial assistance to students from poor families have been improved. China has established and is continuing to develop a new rural cooperative medical care system. Annual subsidies from various levels of government under this system have increased from an average of 20 yuan per capita in 2003 to 120 yuan in 2010. By the end of 2010, more than 835 million people in rural areas were covered under this system. China has also implemented a medical assistance system for rural areas. This system ensures that rural residents in financial difficulty are also covered by the new rural cooperative medical care system, and exempted of certain charges for the treatment of major illnesses. At present more than 41 million people benefit from this policy. Trials of a new rural old-age insurance system have been launched, and already covered 23% of China’s rural areas. A system to ensure a minimum standard of living has been established in rural areas across the entire country, and the amount of financial support provided under this system is constantly being increased. The government has also actively supported the transformation of dilapidated housing in rural areas. More than 2.04 million households benefited from this policy from 2008 to 2010. China has also supported a series of initiatives to enrich the cultural satisfaction of rural residents, such as opening rural community libraries and screening films in public. 

 III. Permanent institutional measures to relieve burdens and boost incomes

 Building on the successful reform of rural taxes and fees, the Chinese government decided to proceed with the comprehensive reform of rural areas in 2006, the aim being the establishment of a permanent mechanism to relieve rural burdens and boost incomes. 

 1. The reform of organizations in towns and townships has continued to deepen. Key points have been identified in the layout of administrative organizations and the division of functions in various towns and townships in line with the principle of classified guidance, in consideration of local characteristics, and in accordance with the realities of economic and social development. By the end of 2010, organizational reforms had been carried out in 85% of towns and townships across the country. These reforms have brought about improvements to the system of administrative management in rural areas. China has improved its mechanisms to ensure the sufficient funding of village level authorities. With these efforts, a stable, well-regulated and effective system to guarantee the availability of operational funds in authorities at the village level has gradually been put in place. 

 2. Financial management at the county and township levels has been improved. Reforms to bring county finance under direct provincial management and township finance under county management have been pursued. The aim of these reforms is to improve financial management at the grassroots level and security of funding of grassroots governments. By the end of 2010, a total of 970 counties in 27 provinces had turned over financial authority to their respective provinces, while 28,600 towns and townships were involved in schemes to enact county management over township finance. In order to ensure that counties and townships are able to pay out wages, operate effectively, and provide public services, a mechanism to guarantee the basic funding of county level governments with support from the central budget was established in 2009. This mechanism ensures that grassroots governments have the financial capacity to engage in public administration, provide public services, and implement various policies regarding public wellbeing. 

 3. The reform of compulsory education has progressed steadily. Reforms aimed at further ensuring the sufficient investment of funds for compulsory education in rural areas were introduced in 2006 in an effort to ensure adequate investment in compulsory education. By the end of 2009, the funding of compulsory education in rural areas had been fully guaranteed by public finance. In addition, the government has also backed a comprehensive reform of measures governing the allocation of teachers and educational resources in the countryside, which has helped to promote the balanced development of education in different areas. 

 4. Major progress has been made in tenure reform for collectively-owned forests. In 2008, the CPC Central Committee and the State Council circulated Suggestions on Promoting Tenure Reform of Collectively-Owned Forests in an All Round Way. This was followed by the passage of comprehensive arrangements for reform in 2009. By the end of 2010, 18 provinces had fulfilled the task of confirming ownership and contracting forestland to individual households. With an additional means of income, almost 300 million rural residents have benefited from these reforms.

 5. Efforts to clear and settle rural debts have progressed steadily. In 2007, the central government authorized trials for the clearance and settlement of debts incurred through the provision of compulsory education. The trials, which involved Inner Mongolia and 13 other provinces (autonomous regions), were launched on a nationwide scale in 2009. By the end of 2010, a total of 69.8 billion yuan in debts were cleared and settled, benefiting more than 2 million rural creditors. In addition, trials for the clearance and settlement of other public welfare related debts in rural areas have also been launched. Guizhou, Chongqing and Gansu were chosen for the trials in 2009, with seven more provinces (autonomous regions) being added in 2010, including Inner Mongolia. The clearance of rural debts has not only eliminated the danger that rural burdens might increase again, but has also helped to ease social conflicts in rural areas.

 6. New mechanisms for the development of public service programs in rural areas have been improved. In order to address the difficulty of developing public service programs in rural areas, Heilongjiang and two other provinces launched a trial scheme in 2008 to reward and subsidize public service programs on a case by case basis at the village level. Developed on the basis of experience, this system rewards and subsidizes village-level programs that are deliberated on a case by case basis and launched by villagers themselves. Supported projects include the construction of small water conservancy facilities and roads, environmental sanitation, tree-planting and forestation. In 2010, the number of provinces involved in the trial increased to 27. This system has given rural residents a huge incentive to become involved in public service programs, improved the working and living conditions of rural residents, and promoted democracy at the grassroots level.

(Originally appeared in Qiushi Journal, Chinese edition, No.4, 2011)

Note: Author: Minister of Finance of the People’s Republic of China 

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