The Chinese government has cut taxes on rural financing to back development of rural finance and lending to farmers, the Ministry of Finance (MOF) said Thursday.

The government has canceled the sales tax on interest income from small loans to rural households and axed the amount of rural financial businesses' interest income that is subject to tax by 10 percent, according to a circular issued by the MOF on its website.

The measure is back dated to Jan. 1, 2009 and would last to Dec. 31, 2013, the circular said.

The government also cut the sales tax on insurance premium income for rural financial institutions, including rural credit cooperatives and village banks among others, to 3 percent, said the circular, without providing previous rate.

The policy is back dated to Jan. 1, 2009 and willl last to Dec. 31, 2011.

The small loans under the new tax policy refer to the amount no more than 50,000 yuan (7318.0 U.S. dollars) that a rural household borrows from financial institutions at one time. Total outstanding loans for the household should not exceed 50,000 yuan.