China to cut logistics VAT on vegetable wholesalers

Finance minister Xie Xuren told an economic forum over the weekend in Beijing that the government plans to remove the value-added tax (VAT) on vegetable distribution as part of a fiscal reform to reduce tax burdens on vegetable wholesalers, but analysts said the move is unlikely to help much in lowering produce prices.

The government's push to cut the logistics VAT on vegetables indicates its effort to allay inflationary pressures, Wang Surong, a taxation professor at the University of International Business and Economics, told the Global Times yesterday.

Produce prices are mainly decided by market supply and demand, and the tax is not the main reason why the prices are increasing, Zhu Weiqun, a professor at the School of Public Economics and Administration at Shanghai University of Finance and Economics, told the Global Times yesterday.

"Removing the VAT on vegetable distribution will help reduce some costs in the supply chain for wholesalers, but the government still can't stop them from passing on increased costs to consumers," Zhu said.

Vegetable prices have been on the rise for the past few months. The latest data released by the Ministry of Commerce showed that vegetable prices rose by about 2.6 percent during the week from March 5 to 11 compared with the previous week.

Moreover, prices of some items have witnessed a considerable rise.

The average price of Chinese green onion in Shanghai yesterday was 5.8 yuan ($0.92) per kilogram, up 61 percent from 3.6 yuan per kilogram a month earlier, according to data on Shanghai agricultural wholesale market's website.

The vegetables prices may not decline much as a result of tax cuts, Zhu noted.

The local government should provide more timely produce market information to help the farmers plant the right agricultural products so that what they supply to the market can match what the consumers demand, Wang said.

There is a lack of information providers in the countryside and most farmers plant blindly, the taxation professor said.

They tend to grow whatever sells well at a time, quickly leading to oversupply and price declines, which hurts the farmers' incentives, Wang said.

Subsequently, a supply shortage pushes up the prices sharply, and the result is a vicious cycle, he noted.