China to Abolish Contentious Agricultural Levy

The Chinese government Thursday approved plans to abolish the agricultural tax, a centuries-old levy imposed on farmers that communist authorities had continued for more than five decades.

China’s rural population of 900 million has largely been on the losing end of the country’s dramatic economic growth, which has created huge gaps in wealth that could threaten the country’s stability.

Since coming to power nearly three years ago, President Hu Jintao and Premier Wen Jiabao have made it a priority to raise farm incomes and reduce unrest. As many as 74,000 protests broke out across the country last year, in large part because of rural discontent.

The tax was reduced recently, and a plan to phase it out over five years was put in motion last year.

But the National People’s Congress voted Thursday to move the date up to the start of 2006, the official New China News Agency reported.

Since imperial times, Chinese farmers have had to pay a tax to support the government. The tax is determined by how much land a family is allotted, regardless of how productive it is. The communists continued the tradition, and the rural tax made up the bulk of Beijing’s revenue stream for many years. However, China’s economic transformation has generated many more profitable industries.

Rural residents have long complained about a system that requires them to pay the tax no matter how much they earn from farming, and even if they don’t till their land.

People who move to cities to work but still have rural land also must pay the levy.

The amount varies across the country but generally amounts to about 10% of a farmer’s income.

However, in poor areas where there are few other industries to tax, it might be as high as 40%, said Cao Jingqing, an expert on rural affairs at Huadong University of Science and Technology in Shanghai.

Abolishing the tax will end local governments’ ability to impose additional levies, Cao said. “It will give farmers psychological comfort. But the real financial benefit to farmers will be small compared to its political windfall.”

Three years ago, China collected $7.5 billion from the agricultural levy.

With tax reforms, that dropped to $2.9 billion in 2004 and $187 million this year.

The central government plans to make up for the shortfall to local coffers by providing subsidies.

In part because of the reforms, farmers’ incomes rose 6% last year, the biggest increase since 1997, according to government reports.

But China has a long way to go to balance disparities in income and quality of life between rural and urban residents.

According to a recent report issued by the U.N. Development Program, income disparity has doubled in the last 25 years. An average city dweller makes $1,000 a year, whereas those living in the countryside make $300.

Urban residents receive better education and medical services, while the healthcare system in the countryside is near collapse.

On average, farmers live five years less than urbanites.

An estimated 140 million farmers have migrated to cities in search of work.