Agriculture Tax
29 Agriculture Tax
PAYMENT PROCEDURES AND POLICIES
TAX REFORM AND NEW STIPULATIONS
This tax is levied on agricultural income. The Regulations of the People's Republic of China on Agriculture Tax currently in force were passed and promulgated at the 96th Session of the Standing Committee of the 1st National People's Congress (NPC) on June 3, 1958, and came into effect on the same date.
Agriculture Tax is administered and collected by the local financial departments and the local tax bureaus. The revenue collected belongs to the local governments. In 2003, revenue from Agriculture Tax amounted to 33.74 billion yuan, accounting for about 1.7% of the country's total tax revenue.
Often, a local surtax is levied together with Agriculture Tax. According to the Regulations on Agriculture Tax, the People's Government at the provincial level may, upon approval by the People's Congress at the same level, collect this surtax for the public benefit of the local populace. The revenue collected should be spent on the construction of village roads and bridges, secondary and primary schools in villages, or water projects.
TAX REFORM
In recent years, some major revisions have been made to Agriculture Tax, which are discussed in greater detail at the end of the chapter.
On March 2, 2000, the Chinese Communist Party Committee (CCPC) and the State Council issued the Notice on Carrying Out the Experiments of Tax and Fee Reform in the Countryside, which laid out various policy adjustments related to Agriculture Tax:
On March 27, 2003, the State Council issued the Opinions on Fully Pushing Forward the Tax and Fee Reform Experiments in the Countryside. This document laid out rules intended to further fine-tune policies related to Agriculture Tax:
Since approval was granted at the Second and Third Meetings of the 10th NPC in March 2004 and March 2005, respectively, the tax rate has been gradually reduced. Initiated in 2004, reductions will continue until full exemption is achieved nationwide in 2006.
Currently, the tax is levied in some cities and counties (excluding key counties supported by State projects) of Hebei, Shandong, Guangxi, and Yunnan only, at rates not exceeding 2%.
TAXPAYERS
Any of the following entities that is engaged in agricultural production or that receives agricultural income within the territory of China, may be subject to tax:
- Cooperative economic entities, farms, forestry centers, and breeding sites.
- Enterprises.
- Administrative units, institutional units, military units, social organizations, and other units.
- Temples.
- Peasants and other individuals.
TAX BASE AND SCOPE
What Constitutes Taxable Income
The following forms of agricultural income constitute taxable income:
- Income from the planting of grains.
- Income from the plantation of potatoes.
- Income from the plantation of cotton, sesame, tobacco, oil materials, or sweet plants.
- Income from horticultural plantation.
- Income from other forms of economic plantation.
- Other income stipulated or approved as being taxable by the State Council.
What Constitutes Annual Yield
Tax payable is calculated based on the normal annual yields from the plantations.
Assessed Yields
The normal annual yield for a specified category of agricultural plants is taken as the output achievable under normal natural conditions.
It is assessed based on the natural conditions of the land in the locality, as well as on plantation traditions and normal operational practices in the locality.
After the yield has been assessed, it shall be taken as the tax base for a specified period.
Deemed Yields
For tax computation, all grains and economic crops shall be treated as one of China's main grains (wheat in the north; rice in the south), and their normal annual yields calculated accordingly.
The grains shall be taken as the computation units. Tax payable shall be calculated based on the statutory computing units.
The percentage used to “convert” grains and economic crops into the main grains shall be formulated by the People's Government at the provincial level, based on local conditions.
TAX RATES
General Guidelines
Tax payable is based on the normal annual yield of grains and the applicable tax rate.
Flat rates are adopted, with average rates being specified for different grades of grain.
Determining Applicable Rates
Under Statute
As specified by the Regulations on Agriculture Tax, the average tax rate to be applied to normal annual yields nationwide is 15.5%.
However, the actual average rates have been very low for many years, as have the tax-bearing rates (i.e., the ratio of the tax payable to the actual agricultural output).
By the State Council
The State Council shall stipulate the average rates for provinces/autonomous regions/municipalities directly under the State Council, in accordance with the Regulations on Agriculture Tax, after considering local conditions.
By the People's Government at Provincial Level
The People's Government at the provincial level shall stipulate the average tax rates for their autonomous prefectures, and the tax rates for their counties, autonomous counties, and cities, bearing in mind the average tax rates stipulated by the State Council, and local conditions in their jurisdictions.
By the Autonomous Prefecture Governments
The autonomous prefecture governments shall stipulate the tax rates for their counties, autonomous counties and cities, bearing in mind the average tax rates stipulated by the People's Government at the provincial level, and local conditions in their jurisdictions.
By the People's Government at County/City Level
Where economic conditions in different areas under the counties, autonomous counties or cities diverge so sharply that it is not appropriate to adopt a single tax rate, the People's Government of the counties, autonomous counties or cities may formulate the tax rates for the counties, autonomous counties, or cities, respectively.
COMPUTATION METHODS
General Guidelines
Tax payable is calculated based on the normal annual yield, the taxable land area, the taxable price, and the applicable tax rate.
Computing Taxable Income
Taxable income is computed in various ways, depending on the nature of the income.
- Income from the plantation of grains: In line with normal annual yields for grains.
- Income from the plantation of potatoes: In line with normal annual yields for grains planted on the same tract of land.
- Income from the plantation of cotton/sesame/tobacco/oil materials/sweet plants: With reference to the normal annual yields for grain plantation.
- Income from horticultural plantation: Based on computation standards laid out by the People's Governments at the provincial level, after considering local conditions.
- Income from other forms of economic plantation: As above.
- Other income stipulated/approved by the State Council: As above.
Computing Tax Payable
In general, the following formula is used to compute tax payable:
Tax payable = Taxable land area × Normal annual yield per unit of land × Taxable price × Applicable tax rate
Example
Mr Tian, a farmer, planted 10 mu of wheat. The normal annual yield is assessed as 400 km/mu. The taxable price is 1.6 yuan/km. The local applicable tax rate is 2%.
Tax payable = 10 mu × 400 km/mu × 1.6 yuan/km × 2% = 128 yuan
REDUCTIONS AND EXEMPTIONS
The main tax exemptions and reductions are discussed below.
For Maximization of Cultivated Land Area
Expanding Land Area
Where taxpayers earn agricultural income from cultivating barren land in accordance with prevailing laws, or from expanding cultivated land area in other ways, exemptions may be granted for 1–3 years, starting from the first year that profit is generated.
Opening up Wastelands
Where immigrants derive agricultural income from opening up wasteland, exemptions may be granted for 3–5 years, starting from the first year that profit is generated.
Cultivating Mountainous Regions
Where taxpayers receive income from mulberry fields, tea gardens, fruit gardens, and/or other industrial forests that they have newly cultivated or newly re-cultivated on mountains, exemptions may be granted for 3–7 years, starting from the first year that profit is generated.
For Maximization of Yields
From Water/Soil Projects
Where taxpayers derive income from land on which they have constructed water/soil projects or soil/water conservancy projects, and where the yield per unit of land has increased as a result, the taxpayers shall be subject to tax on what their normal output would have been before they reaped the benefits from the projects, if the beneficial period is less than 3 years. The incremental output is exempt.
On Compassionate Grounds
Natural Disasters
Where taxpayers reap poor harvests because of floods, drought, typhoons, hail, or other natural disasters, appropriate reductions or exemptions may be granted.
Backward Regions
Reductions may be granted in the following circumstances, upon approval by the People's Government at or above the provincial level:
- Old revolutionary regions: Where peasants live under harsh conditions.
- Minority nationality areas: Where production is backward, and living conditions are harsh.
- Mountainous areas: Where transportation is inconvenient, production is backward, or peasants endure severe hardships.
Other Disadvantaged Individuals
Exemptions or reductions may be granted to the following individuals, upon approval by the People's Government at or above the county level:
- Family members of revolutionary martyrs.
- Handicapped soldiers in the countryside.
- Other taxpayers who face real difficulties in paying tax because of labor shortages or other circumstances.
Others
- Partial or total exemptions may be granted to fine-crop seed propagation farms for demonstration.
- Where taxpayers derive income from plantation on land used for experiments by agricultural science and research institutions or universities, exemptions may be granted.
- Where taxpayers derive income from scattered plantation of vacant land, exemptions may be granted.
PAYMENT PROCEDURES AND POLICIES
General Guidelines
Tax is collected during the summer and autumn seasons. Where the summer harvest is relatively limited, tax collection for the two seasons may be combined into one collection during autumn.
The specific time for collection shall be determined by the People's Governments at the provincial level.
Entrusted Collection
The financial and tax departments may entrust the grain departments to collect tax on their behalf, or they may collect tax using their own resources.
Delivery of Agricultural Products
Taxpayers should send the grains or other agricultural products, and the money payable, to the designated departments within the time limits specified.
Taxpayers are obligated to deliver the grains and other agricultural products payable (in kind) by them.
Compulsory Transportation Distance
In principle, this distance is the way to and fro within one day. The applicable compulsory distance shall be specified by the People's Government at the provincial level.
Any distance covered in excess of the compulsory distance shall be compensated, based on normal freight charges.
Where the distance covered by the taxpayers falls within the compulsory distance, but where they have to travel through mountainous areas with poor transportation infrastructure, appropriate preferential tax treatment shall be awarded.
LOCAL SURTAX
A surtax is often charged together with Agriculture Tax. Surtax payable is based on tax payable and the applicable surtax rate. In general, the following formula is used to compute surtax payable:
Surtax payable = Tax payable × Applicable surtax rate
TAX REFORM AND NEW STIPULATIONS
New rules have been put in place to aid tax reform in the countryside, especially with respect to fee charges being replaced with taxes.
Changes Stipulated by 2000 Notice
The changes discussed below were laid out in the Notice on Carrying out the Experiments of Tax and Fee Reform in the Countryside, issued by the CCPC and the State Council on March 2, 2000.
Tax Base and Scope
Annual Yields
The normal annual yield shall be based on the average actual output per year for the 5 years preceding 1998, and once determined, will be held constant at this value over the long term.
Taxable Land
Taxable land shall be defined in the following manner:
- Where land is subcontracted by farmers for agricultural production, the taxable land shall be the land allocated for agricultural production in the second round of subcontracting.
- For other units or individuals engaged in agricultural production, the taxable land shall be the land actually used for agricultural production.
Where the taxable land changes, the tax shall be adjusted in a timely fashion.
Tax Rates
Rates have been adjusted as the previous surtax has been integrated into the revised Agriculture Tax. The new tax adopts differential rates, with the maximum rate being 7%.
Determination of Applicable Rates
Specific tax rates and total tax amounts in the following areas is determined in various ways:
- Provinces where reform experiments are being conducted: By the State Council.
- Experimental areas below provincial level: By the People's Government below the provincial level, with the overall objective of reducing the burden of farmers.
- Poor areas: With the objective of keeping rates low.
Computation Methods
Tax is still computed based on normal annual yields and the applicable tax rates.
Reductions and Exemptions
There have been no fundamental changes in policy here.
Local Surtax
The new surtax shall not exceed 20% of the Agriculture Tax.
For experimental areas below the provincial level, specific surtax rates shall be assessed by the People's Government.
Changes Stipulated by 2003 Opinions
The changes below were laid out in the Opinions on Fully Pushing Forward the Tax and Fee Reform Experiments in the Countryside, issued by the State Council on March 27, 2003.
Unless the State makes further policy adjustments, the appropriate tax burden for each locality, once determined officially, shall be kept constant over the long term.
Tax Base and Scope
Assessment of Taxable Land Area
- When assessing the taxable land area, the tax collection department should assess accurately any decrease in area arising from natural disasters or compulsory takeovers of the land.
- Where the taxable land area is reduced by the long-term construction by occupying units or by the construction of buildings or infrastructure for the public benefit of the local populace carried out without legal approval, the decrease should first be assessed.
Then, the units occupying the land should formally apply for the approval that they failed to seek before, and pay any applicable tax in accordance with prevailing rules.
Where the units face difficulties in paying tax, the change in land area may be recorded first, but temporarily not included in calculations of the taxable land area.
Assessment of Annual Yields
- When assessing normal annual yields for new experimental areas, the tax collection departments may base their calculations on the average actual output per year over the 5 years preceding 1998, when the reforms began, after fully considering local conditions and seeking the opinions of local peasants for confirmation.
- Where natural conditions differ between villages, the normal annual yields assessed should reflect that difference.
Assessment of Taxable Prices
- The taxable prices of specified agricultural products shall be determined by the People's Government at the provincial level after exhaustive consideration of grain market prices and prices at which the market is protected.
They should also consider the ability of local peasants to pay the taxes, and roads, waterways, and so on connecting neighboring areas.
- Taxable prices that are obviously high should be reduced in accordance with the actual market.