It is illegal to occupy cultivated land for building houses. Why should agricultural occupation tax be levied?

Your understanding is biased. Paying farmland occupation tax does not mean that the fact of illegal occupation has been bleached, that is, it does not affect the nature of farmland occupation. The land department should still be punished.

Policy basis:

Official Reply of State Taxation Administration of The People's Republic of China on the Problem of Recovering Farmland Occupation Tax from Illegal Land Occupation

1998101October 30th

Hebei Provincial Department of Finance:

Your office's "Emergency Request for Instructions on Illegal Occupation and Recovery of Farmland Occupation Tax" (Ji Cai Nong Shui Zi No.31[KLOC-0/998]) has been received. After study, the reply is as follows:

The Ministry of Finance's Provisions on the Specific Policies of Farmland Occupation Tax ([87] Cai Nong Zi No.206) clearly stipulates that farmland occupied without approval shall be subject to farmland occupation tax after 1 April/9871day. The policy boundary in the specific implementation is: for the farmland occupied without approval, if the land use procedures need to be completed after 1 April, 9871according to the land management policy, the farmland occupation tax will be levied according to the regulations, and the recovery period will be subject to the retrospective period of land occupation required by the local land management department. Before the establishment of the land management department, the cultivated land occupied with the approval of other government departments, after April 1987, shall be exempted from the cultivated land occupation tax if it needs to go through the formalities of renewal in the land management department.