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Issue 06, 2004 (01 June)

China Readies for Pilot Reform on Agricultural Tax Exemption

With State Council approval, the Ministry of Finance, Ministry of Agriculture and State Administration of Taxation have recently decided to reduce the agricultural tax rate and implement agricultural tax exemption reform in selected key grain production areas on a trial basis. The relevant policies have been clarified. This development will have significant implications for Hong Kong companies dealing in food.

The circular jointly issued by the three ministries concerning the agricultural tax reforms for 2004 stipulates that agricultural tax exemption will be implemented in the two key grain producing provinces of Jilin and Heilongjiang this year on a pilot basis. Meanwhile, the agricultural tax rate in 11 other leading grain producing provinces and autonomous regions will be reduced to 3%. These are Hebei, Inner Mongolia, Liaoning, Jiangsu, Anhui, Jiangxi, Shandong, Henan, Hubei, Hunan and Sichuan. The primary objective of the reduction is to encourage grain production. In the rest of the country, the tax rate will be lowered by one percentage point. Coastal regions and other qualified localities may also join the pilot scheme depending on the local financial situation. In areas where the animal husbandry tax is levied, the tax rate will also be reduced by the same margin as that of agricultural tax. The shortfall in local finances resulting from the pilot reform and tax reduction will be subsidised by central government coffers. Local authorities should ensure the timely injection of the transfer payments and their utilisation for designated purposes. Unauthorised withholding or misappropriation of the funds is strictly prohibited. Agricultural tax collection agencies at all levels should make their best efforts to complete the groundwork for implementing these reforms. The responsibility of collecting the reduced agricultural tax and other additional charges should be implemented at the local level. Notices to this effect should be posted at the relevant units at the village level for no less than 10 days for public viewing.