Tax plan inevitable despite previous problems

PUBLISHED : Thursday, 18 April, 2002, 12:00am
UPDATED : Thursday, 18 April, 2002, 12:00am

China will continue to expand its tax-for-fee experiment despite earlier problems with the reform.

The reform experiment is intended to replace arbitrary fees imposed by village cadres with a standard tax scheme.

The State Council recently issued a circular announcing new pilot cases had been selected for the experiment, in addition to Anhui and Jiangsu provinces and 102 counties in other provinces, Xinhua reported yesterday.

The fees scheme was tested out in Anhui two years ago and then extended to Jiangsu and the 120 counties last year.

The circular did not specify the number of new pilot cases or if the reform would be introduced in all provinces.

It said the central Government would gradually introduce the reform.

In an apparent bid to address the worries of local governments, the circular went to great lengths to explain how Beijing would increase subsidies to local governments to compensate for the shortfall in finances, as well as how the funds should be used.

Subsidies had been set aside for the new pilot cases. Poor regions, major grain producing areas and those inhabited by minorities would also receive 'extra care' from the state.

Premier Zhu Rongji was forced to halt the reforms in July last year after being faced with fierce opposition from local governments worried about a loss of income under the new scheme. Analysts believe the central Government was hesitant as it realised it would have to pay out large sums of money in subsidies.

The shortfall could amount to several hundred billions of yuan, analysts said.

But the state cannot simply scrap the reform as it is under immense pressure to come up with measures to reduce the financial plight of rural residents - particularly as many farmers are now forced to leave their land idle because of the extortionate fees. Some farmers have even committed suicide over this.

Vice-Premier Wen Jiabao - who is in charge of agriculture and tipped to be the next premier - gave his backing to the reform earlier this week.

Although the reform is much needed, many experts say education in rural areas has become the first casualty as officials paid themselves first.

The circular called for local governments to put education as their main priority and reduce the payrolls of rural officials.