Squeezing the farmers: taxation in rural China

While China's cities are growing economically, many rural areas are still very poor. Raising rural incomes is one of the most difficult challenges in modern China. Part of the problem is the unreasonably high financial demands made on rural people, for which they get little in return. This 'peasant burden' of heavy taxation and random fees has often resulted in social unrest in rural areas.

Chinese villagers are subject to official taxesfor different levels of government: village, town, county and state. On top ofthese formal taxes, there are numerous unofficial fees and levies for differentpurposes. Research from the Institute National de la RechercheAgronomique, France, investigates the peasantburden through a study of one village in Hubei, central China.

The research shows that in the study village, officialtaxes and fees amount to 13 percent of villager income, much higher than the officiallimit of 5 percent. When unofficial charges are included, the figure rises toover 20 percent of villager income. These are similar figures to those fromother studies. Collecting these taxes often involves local teams of cadres(government servicemen) going to village houses to take payments. This can be aviolent process, with property being taken away if payments are not made.

There are many reasons for the large taxes andfees taken from people in the study village. These include:

• Alow level of economic development: villages with productive businesses fromwhich to collect taxes make fewer demands on peasants. In the study village,there are no non-agricultural enterprises so higher taxes are collected fromvillagers
• Financialdifficulties of county governments: the county is very dependant on agriculturaltax for funds. In poor agricultural years - whether due to low prices or badweather - this can cause problems, meaning individuals are taxed more heavily.
• Thedecline of public services: local governments have to pay for a largerproportion of infrastructure and social services than in the past.
• Anincrease in government staff: the ratio of local government staff to villagershas increased greatly in the last ten years. The cost of this means highertaxes for villagers.

The Chinese government has policies to reducethe peasant burden. At the time of the research, these focused on reducing officialpayments to town and village governments. However, in the village studied, thesepayments are only 20 percent of the total amount paid by peasants. This policywill therefore only have a limited impact on reducing rural poverty.

Despite policies to reduce rural taxes, problemsremain. Some of these relate to financial systems, particularly the high publicservice costs in poor rural areas. Another issue is a lack of local democracy,despite policies allowing village elections. Genuine participation and realempowerment for rural people would mean greater openness around financialissues at all levels of government, and greater control by villagers of localresources. Many of the causes of high taxes are difficult to solve withoutrural development programmes. Farmer organisations can help, alongside greateropenness and accountability from local governments. The research recommends thefollowing measures:

• Consistentcriteria should be established to measure and monitor villager payments, includingthe full range of charges. These should not only include town and village fees,but also state taxes and other payments to institutions and informal projects.
• Reformsto the administrative system should continue: these include reducing staff numbersand improving work efficiency.
• Policiesthat promote rural economic growth are essential to generate funds for goodpublic services, reducing the need to tax individuals.