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China’s Law of Environmental Protection Tax was drafted in 2015 and passed by the Standing Committee of The National People’s Congress of China in late 2016. The Law will take effect on Jan 1st 2018 and will ultimately replace the emission fee system which has been in place for almost 40 years. With the effective date approaching, both central and local governments have started preparing for the implementation of the Law.
Earlier this June, the Ministry of Environmental Protection (MEP) and the State Administration of Taxation (SAT) signed a memorandum on the cooperation and coordination of the management of the environmental protection tax. The main process involved is as follows: enterprises declare their emission; tax department collects; and the environmental protection department monitor and supervises. In August, the above two government branches along with the Ministry of Finance (MOF) jointly issued a notice, asking the local governments to begin preparation work. 5 major tasks were mentioned in the notice:
Establish a mechanism for coordination between local environmental protection department, taxation department and financial department;
Determine the local tax level for atmospheric and water pollutants, as well as the emission monitor methods;
Transfer data generated by the pollutants emission fee system;
Develop an information sharing system between the local environmental protection department and the taxation department;
Arrange training for the local taxation staff and familiarize them with the new tax policies.
A lot of local governments responded to the requirements after the notice. Take Jiangsu Province as an example. Jiangsu government issued the draft rules on the environmental protection tax on Sep 14th. As Jiangsu province is among the most economically developed provinces in China, it sets a relatively higher tax level. The tax is 4.8 RMB per equivalent on atmospheric pollutants and 5.6 RMB for water pollutants, both of which are 4 times the lower limit stipulated by the Environmental Protection Law. The tax level for its capital city, Nanjing, is even higher: 8.4 RMB per equivalent for both atmospheric and water pollutants, 7 times and 6 times of the national lower limit.
The taxation level in Jiangsu under the new system will be exactly the same as the current pollutants emission fee which was updated in 2015. Enterprises will not be subject to greatly increased financial burden. The situation in Nanjing is basically the same, except for enterprises involved with emission of ammonia and nitrogen pollutants and some heavy metal pollutants and COD in waste water. The current emission fee in Nanjing is 6.4 RMB for ammonia and nitrogen atmospheric pollutants, and 8 RMB for heavy metals and COD in water pollutants. The environmental protection tax level is slightly higher than the current emission fee. However, the environmental protection tax law will remove articles stipulating doubling of charges for enterprises that exceed the emission limit. Charges on some enterprises may even decrease, particularly for companies that improve pollution treatment techniques and reduce emissions to 30% lower than the stipulated limits. The changes in the new law reflect the purpose of the law, which is not to increase the tax revenue of the government, but to provide a more solid legal basis to curb pollution.
