Prudent fiscal policy to continue - Premier
(Xinhua)
Updated: 2005-12-20 08:22

Agricultural tax to be scrapped

Chinese Finance Minister Jin Renqing said Monday that China will scrap all agricultural taxes, putting an end to a levy that has burdened China's farmers for 2,600 years in China.

An expert with the State Administration of Taxation said the tax cuts come four years ahead of schedule. Just last year Chinese Premier Wen Jiabao made the commitment to eliminate agricultural taxes within five years.

The upcoming phase-out of the tax represents another significant step taken by China to relieve the financial burden on the country's 800 million farmers and an attempt to narrow the widening income gap between urban and rural households.

To date, 28 of 31 provincial areas on the Chinese mainland have exempted farmers from agriculture taxes. The last three provinces are expected to follow suit next year.

The minister said the central government allocated 66.4 billion yuan (US$8.3 billion) in transfer of payments to local governments to compensate for the phase-out of the tax this year, an increase of 271 percent over that of 2002.

China's tax authorities said China is expected to collect only 1.5 billion yuan (US$187.5 million) in agricultural tax, compared with 23.2 billion yuan (US$2.9 billion) last year as part of the ongoing rural tax overhaul.

Farmers' income soared by 6 percent last year thanks to the tax reform and grain production subsidies paid by the central government, the fastest growth since 1997.

Jin said the total funding from the central government for farmers, agriculture and rural areas is expected to exceed 300 billion yuan (US$37.5 billion) this year, up 50 percent over 2002.

Local governments have also increased their funding for rural areas, he added.

China used to collect up to 60 billion yuan (US$7.5 billion) in agricultural taxes before tax reforms began three years ago.

Agricultural tax was one of the key sources of revenues of the central government in the 1950s. In recent years agricultural taxes accounted for on one percent of the total government revenues thanks to the rapid development of other industries.