Tax chaos still plagues China's farmers

Farmers across China are often burdened with a bewildering array of taxes and government fees

By Willy Wo-Lap Lam
Senior China Analyst

(CNN) -- Chinese Premier Zhu Rongji, who once said he should get the Nobel Prize for stabilizing the economy in the mid-1990s, is seldom reticent about his achievements.

In recent internal discussions, for example, the gung-ho Chief Engineer of Reform gloated about the fact that the problem of state-owned enterprises had been "basically solved."

Pointing to the satisfactory development of an urban social security system -- another of his babies -- the premier said he was not worried about unemployment worsening in the wake of China's joining the World Trade Organization.

Neither Zhu's publicists nor the official media, however, have divulged much about a major reform that has stalled: the so-called "tax for fees" (TFF) initiative aimed at relieving the burden of farmers, who make up more than 70 percent of China's 1.3 billion population.

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Zhu and his colleagues first announced the TFF system with much fanfare last winter as a new deal for peasants.

Apart from normal taxes on crops and animal husbandry, farmers in many provinces are encumbered with up to 60 different fees and levies.

Such charges are theoretically illegal and often imposed at the whim of village and township cadres.

They range from fees and levies to support local education, road-building and waterworks maintenance to those that underwrite administrative costs, particularly officials' salaries.

These back-breaking fees are a major reason why, unlike factory workers or entrepreneurs, the real income of many rural households has hardly risen in the past few years. It is also the root cause for the tens of thousands of rural riots each year.

Zhu's dispensation was that grassroots administrations nationwide should abrogate all non-tax fees and levies, which amount to roughly 90 billion yuan a year.

In return, the central government would raise the basic farm tax rate from 5 percent to 8.5 percent.

Most importantly, Beijing would set aside 20 billion to 30 billion yuan a year as rural subsidies, with which village and township governments would pay for public works, education, salaries, and other administrative costs.

The system was tried out beginning early last year in Anhui province. And in the spring, articles appeared in official papers saying the system was being applied to different provinces.

However, things are not working out according to plan. It was when he talked to faculty and students of Tsinghua University in June that Zhu hinted that the TFF reform had met with resistance.

While touring Anhui Province in late July, Zhu admitted the initiative had run into major difficulties.

He said the TFF program could only proceed "in a gradual and stable manner," a euphemism for its having been at least temporarily shelved.

"The tax for fees [program] is a profound social transformation," Xinhua news agency quoted Zhu as saying. "Broad [social] sectors are involved and it cannot be accomplished at one go."

The premier, however, did not give full details on why the reform had been stopped -- or when the TFF program would be implemented nationwide.

Zhu merely hinted that owing to the "[limited] ability of state finances to cushion the shock," Beijing had been unable to satisfy the demands of village and township governments.

The situation, however, is much more serious than what Zhu let on -- and it points to the heart of the agrarian problem.

In reality, the TFF experiment has been stopped except in individual regions in Anhui, which, after all, was the province famous for rural reforms such as the household responsibility system of the early 1980s.

A major reason for the TFF's failure is that the 20 billion yuan or so of subsidy offered by Zhu is not enough to pay for the huge administrative outlays of grassroots governments.

An estimated 40 percent of all village and township governments are in debt, to the tune of tens of billions of yuan in total.

Rural officials and teachers, even those in supposedly prosperous coastal provinces, are often not paid for months.

Rich pockets

Chinese sources close to the agriculture sector have explained that so far, the TFF system has only worked in villages and townships with substantial industrial and commercial sideline businesses.

In such rich pockets, local governments can easily collect enough taxes to run public services and pay the salaries of officials.

In many villages, cadres are openly saying that unless they can go on levying fees and charges, essential services, including free education for children, have to be stopped.

The sources said Zhu had reluctantly decided to postpone the TFF experiment until around March 2003, or the end of his term as premier.

The reason is not hard to divine. The biggest item of expenditure for grassroots governments is personnel: the pay-checks of all kinds of cadres, civil servants, technicians, family-planning experts, tax collectors, party hacks, political commissars, quasi-military personnel, and teachers.

Immediately after Zhu became premier in March 1998, he went about streamlining personnel in the central government.

Beijing claimed that 50 percent of central-level posts had been slashed. In reality, about half of officials whose positions had supposedly been abolished have found jobs in either quasi-governmental units or local-level administrations.

Excess personnel

The same exercise of cutting the bureaucracy by half began at the level of provinces and big cities last year.

And a similar thing happened: officials whose posts have been abolished have sought refuge in lower-level government units.

The last part of Zhu's campaign -- ridding county, township and village administrations of excess personnel -- would begin early next year and run until early 2003.

"Zhu hopes that by the time the number of grassroots officials and civil servants is slashed by half, supposedly by early 2003, the TFF experiment can take off because rural administrative expenditure will be cut drastically," said a Beijing academic familiar with rural reforms.

The academic said, however, that bureaucratic streamlining at the village level would prove most difficult because unlike officials at higher levels of government, laid-off staff at grassroots levels have nowhere else to go.

"Zhu is hoping such laid-off officials can start their own businesses -- or at least they can subsist on social security pay-outs," he added.

Even if the TFF initiative is re-launched in March 2003, rural experts are doubtful whether this reform alone can solve the misery of the long-suffering peasantry.

Cheaper produce

At the economic level, greater strides have to be made in boosting the non-farming income of villages.

Particularly after China's accession to WTO, traditional farming will come under threat from the influx of superior, and often cheaper, foreign produce. More peasants must be given the wherewithal to go into industry and trading.

Politically, as commentator Jing Linbo pointed out, TFF could only work in an environment of grassroots democracy.

"We must strengthen taxpayers' supervision of and control over local administrations," he said.

While there are village-level elections all over the country, the supposedly popularly elected village administrative committees have no jurisdiction over the levying of taxes and other charges.

As Zhengzhou University expert Luo Guanglin pointed out, TFF is a "systems engineering that affects that whole nation."

"You seem to have plucked only one strand of hair, yet the entire body is affected," he said.

Unless rural reforms have run their full course, the Communist Party's dream of "long rule and perennial stability" may remain illusory.