Loans and tax cuts join forces, targeted regulation delivers precise drip irrigation to agriculture, rural areas and farmers

According to the website of the Chinese government, Premier Li Keqiang of the State Council presided over an executive meeting of the State Council on December 3, deploying the promotion of the Zhongguancun pilot policies on a larger scale, accelerating the construction of national independent innovation demonstration zones, and further encouraging mass entrepreneurship and mass innovation; and deciding to increase tax support for rural finance to help the reform and development of agriculture, rural areas and farmers.

The meeting held that the work on agriculture, rural areas and farmers has always been the top priority of the government's work and must never be relaxed for a moment. It is necessary to adhere to the requirements of targeted regulation and, by improving fiscal and tax policies, enhance the motive force and capacity of financial support for the development of agriculture, rural areas and farmers. This is of great significance for strengthening food security, raising farmers' incomes, accelerating structural adjustment and advancing agricultural modernization.

The meeting decided that, in order to further ease the problems of high cost and high risk of agricultural loans and the difficulty for low-income farming households in obtaining loans, the following two policies, which had already expired, would be extended to December 31, 2016: First, interest income from small loans to farming households by financial institutions of no more than 50,000 yuan shall be exempt from business tax, and 90% of it shall be included in the taxable income for enterprise income tax, so as to mobilize the enthusiasm of financial institutions to lend to farming households. Second, for premium income from insurance companies' crop and livestock insurance businesses, 90% shall be included in the taxable income for enterprise income tax, so as to expand insurance protection and services for farming households. At the same time, in view of the fact that the loan demand of farming households is mainly concentrated in the range of 50,000 yuan to 100,000 yuan, the ceiling for small loans to farming households eligible for tax preferences will be raised from 50,000 yuan to 100,000 yuan, and the preferential tax policy of levying business tax at a reduced rate of 3% on the insurance business income of county-level rural financial institutions will be extended to the end of 2016. Let the policies benefiting farmers continue to deliver results and promote agricultural development and increase farmers' incomes.

Regarding the decisions of this executive meeting of the State Council, both institutional researchers and grassroots workers believe that they have grasped the key to the issues of agriculture, rural areas and farmers. "This decision is both a continuation and strengthening of earlier pro-agriculture policies and a prelude to the upcoming Central Rural Work Conference and the rural work conference. Agriculture, rural areas and farmers are still the weak link and the weak sector in our national economy. Increasing support for agriculture, rural areas and farmers is a requirement for achieving coordinated development between urban and rural areas and between industry and agriculture under the new normal, and it is conducive to gradually eliminating the urban-rural dual structure. Finance is the core of the modern economy and is increasingly becoming the source of living water for the modernization of agriculture, rural areas and farmers. The pro-agriculture policy combines fiscal and financial means, grasps the key to invigorating agriculture, rural areas and farmers, and brings new good news for the development of agriculture, rural areas and farmers and the county-level economy and finance. It is expected that this decision will bring considerable benefits to the operations of county-level financial institutions, especially by encouraging further expansion of agricultural credit and agriculture-related insurance businesses," Gao Yuwei, a researcher at the International Finance Institute of the Bank of China, told an Economic Information Daily reporter.

The reporter learned from rural research that, although since the beginning of the year the central government has issued documents many times emphasizing that financial institutions should provide targeted blood transfusions to agriculture, rural areas and farmers, including targeted cuts in reserve requirements, bank support for financing agriculture, rural areas and farmers is still limited due to factors such as insufficient collateral and a poor rural credit environment. This is especially true of some small credit loans, which carry relatively high risks.

A person in charge of a grassroots bank's agriculture, rural areas and farmers business said that increasing the preferential treatment of financial institutions for loans to farming households will undoubtedly increase the enthusiasm of financial institutions. "This includes increasing tax preferences, lowering the reserve requirement ratio for agriculture, rural areas and farmers businesses and increasing tolerance for non-performing loans to agriculture, rural areas and farmers. These will form a joint force and stimulate the business volume of financial institutions in agriculture, rural areas and farmers," he said.

"Extending the preferential policy period this time and raising the upper limit of loans for farming households entitled to tax preferences will undoubtedly stimulate loan business for farming households," another person in charge of agriculture, rural areas and farmers business at a bank in Northeast China told an Economic Information Daily reporter. However, he also pointed out that because the tax preference policy is not "universal," the policy effect may be limited. He suggested that, in addition to fiscal and tax policies, it is more important to carry out innovation in certain systems, such as the government building platforms, increasing collateral that more financial institutions recognize and can dispose of in the future, and introducing more government subsidies to further activate the rural financial market.