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China?s 800m peasants to escape yoke of farm tax


By Richard Spencer

A 2,000-year-old grievance will be lifted next year when China scraps taxes for hundreds of millions of peasants, the government's traditional source of revenue.

Reforms introduced as proof of China's commitment to those left behind by the economic boom are so far ahead of schedule that farm taxes, which date back to before the first emperor, will be abolished early, the finance minister, Jin Renqing, said.

Local governments would be compensated for the loss of income from central funds.

Taxes have been one of the peasantry's great historical grievances. Even today, while urban residents pay income tax and businesses tax on profits, China's 800 million registered rural dwellers pay flat-rate taxes on crops, irrespective of the profits they make.

The system has contributed to a widening gap in income between city and country, which the ruling Communist Party now believes is one of the biggest threats to its rule. Incidents of rural unrest are increasing sharply.

Agricultural tax amounted to an average of 300 yuan (?20) per family when reforms were announced last year. Although small, that figure amounted to more than 10 per cent of rural per capita income. "Farmers, with or without income, 100-year-olds or newborns, have to pay the same tax," Wen Tiejun, an economist with the China Society for Economic Reform, said.

Yet the income it raises is only about one per cent of government revenues. In 1950, as Chairman Mao began his land reforms, that proportion was over 40 per cent.

This week's announcement comes in the wake of reports showing that inequality is reaching a level often associated by economists with social instability. Urban incomes were 3.3 times those in rural areas, according to People's Daily this month, and the real difference was even greater owing to extra subsidies, such as for health care, available to city-dwellers.

Although the government's new concern for the poor, particularly since the change of leadership in 2003, has won support from rural activists, it has done nothing to reduce incidents of unrest, which have been increasing and are becoming more violent, as shown by a recent riot in southern China which led to several villagers being shot dead by paramilitary police.

This is because the formal rural tax is now only one of a number of payments local officials can extract, which range from one-off "fees" to fines for breaching the one-child policy. In addition, many of the reported protests relate to expropriation of land for development.

Some analysts fear that reducing the ability of local governments to raise taxes will only exacerbate their inability to pay proper compensation for the land they give to business as China's economic growth continues.