The incentives are meant to help the industry cope with the collapse of the commodities bubble that sent prices crashing and left large stocks unsold.
Rajapaksa said his proposals, presented to parliament in the government budget for 2009, are meant to ensure sustainable development in the tea industry.
He said the price of a 50 kilo bag of fertilizer for tea smallholders will be reduced to 1,000 rupees, to ease their financial burden.
Smallholders, mainly in southern areas, produce more than half the island's tea and had been hit hard by the crisis last month when prices crashed and large stocks went unsold.
The government stepped in by asking the tea board to buy at the Colombo auctions in an effort to stimulate demand.
The government said it planned to set up a stabilisation fund that would get active in an emergency.
Rajapaksa told parlia