The central government waived the special agricultural product tax, previously levied at 8% on farmers who produce special products such as fruit, aquatic products and mushrooms.
The tax accounts for a small portion of government revenue but was a heavy financial burdens for farmers, who have suffered consecutive annual falls in their income growth.
Per capita urban income was 2.5 times that of farmers in 1998 but in 2002, the per capita income of urban dwellers was 3.3 times that of farmers.
The government said it would also lower the average agriculture tax rate by one percentage point this year from its current 8.4%.
An increasing number of researchers and economists have been calling for the complete abolition of all agricultural taxes.
In cities, taxes are usually levied on net profits, not costs, but in rural areas the agriculture tax levy is based on production, no matter how much farmers have invested.