China bolsters support for farm sector with tax breaks

[BEIJING] China is increasing its support for agriculture by renewing select tax breaks that have expired, the government said on Wednesday, in another move to support the real economy.

China's stumbling economy this year has pared banks' tolerance for risk when they lend, further reducing the supply of loans to small-time borrowers who are usually ignored by banks because they are deemed to be high-risk borrowers.

Financial companies do not have to pay a business tax on the interest earned on agricultural loans worth no more than 100,000 yuan (US$16,260), the Chinese cabinet said after a weekly meeting.

Their corporate income tax would also be discounted by 10 per cent to "muster the enthusiasm of financial institutions when it comes to lending to farmers", the cabinet, or State Council, said in an online statement.

The tax breaks, previously in place but had expired, would be reinstated and are effective until the end of 2016.

Insurers that sell insurance to crop and livestock farmers would also get a 10 per cent discount on their corporate income tax, the government said.

A tax break that cuts the business tax to three percent for financial firms working within counties would also be extended until the end of 2016, the cabinet said.

Buffeted by a slowing housing market and slowing domestic demand and investment, China's economy is forecast by some analysts to be sliding towards its worst downturn in nearly a quarter of a century this year.

Annual growth in the world's second-largest economy could fall to 7.4 per cent, a Reuters poll showed in October .

To rejuvenate the real economy, China announced a cut in interest rates of 40 basis points on Nov 21 in a move that the central bank said was aimed at lowering borrowing cost.

The central bank earlier this year also increased support for farmers by allowing banks that do substantial business with farmers and small-time borrowers to set aside less deposits as reserves.

REUTERS