Shimmering New Green Tax

On January 1， 2018， China’s first environmental protection tax law went into effect. According to it， the tax is calculated monthly and declared and paid quarterly. So， in April， the tax will be collected for the first time.

The environmental protection tax law is an institutional guarantee to improve China’s ecology. With maturing institutions and progressing structural reform， the philosophy of green development has been integrated into Chinese people’s lives and production， promoting the country’s ecological civilization to new heights.

Two-way Mechanism

The law targets enterprises and other entities that directly emit a taxable pollutant， including air and water pollutants， solid waste and noise—the four main sources of the pollution.

Meanwhile， according to the harm on the environment of different pollutants， the law sets different tax standards to impose higher levies on worse polluters. For example， discharging formaldehyde requires paying a tax 24 times higher than emitting the same amount of smoke and dust.

The law also uses tax breaks to encourage three healthier practices： clean production， centralized processing and cyclic utilization. For example， if a company discharges taxable air and water pollutants with densities lower than the standards regulated by the state or local governments， the entity can get a partial tax break. And legal entities responsible for centralized processing of water and household waste are exempt from taxes.

“The law adopts a two-way mechanism by granting tax reductions or exemptions to eco-friendly enterprises and imposing punishments on those violating emission standards，” explains Dong Zhanfeng， vice director of the Department for Environmental Policy at the Chinese Academy for Environmental Planning.“This encourages enterprises to cut emissions and pushes energy-intensive and heavily polluting industries to upgrade and transform， which will promote the country’s adjustment of its economic structure and development mode.” Dong believes that these measures will effectively promote environmental protection through tax leverage.

Motivated Upgrade

The environmental protection tax replaced a “pollutant discharge fee” that had been collected since 1979. Polluting enterprises paid the fee， and revenues were designated for environmental improvement.

The introduction of a pollutant discharge fee played an important role in pollution control. But the regulation did not have a strong legal foundation as the new environmental protection tax law does. Because some local governments and authorities interfered， the discharge fee was often implemented in a way that hardly encouraged polluters to change their ways.

“According to the environmental protection tax law， the tax is paid in terms of the quantity of emissions，” elaborates Dong. “The more you discharge， the more you pay. It is using economic methods to pressure polluting firms to upgrade their technologies and reduce their emissions.”

In Dong’s opinion， by stipulating the environmental protection tax law， the government set up a longterm mechanism for environmental protection with top-level drive. Replacing the “pollutant discharge fee” regulation， the law stipulates legal restrictions enforced via economic penalties， reducing the intervention by the government and other powers.

“The entity that causes the pollution is responsible for its treatment through paying the tax，” says Dong. “This requires enterprises to fulfill their environmental protection duty and meet the requirement for building a fair environmental protection mechanism. Adopting economic means in the form of taxation can improve the efficiency of environmental governance.”

More than Money

“Collecting this environmental protection tax is about far more than new revenues，” stresses Wang Jianfan， director general of the Tax Policy Department of China’s Ministry of Finance. Article 1 of the law clarifies that its purpose is “to protect and improve the environment， encourage energy conservation and emissions reduction and promote the construction of ecological civilization.”

Since the 18th National Congress of the Communist Party of China in 2012， China has made great progress in pollution control. The 2018 government work report showed that over the past five years， both energy and water consumption per unit of GDP have fallen by more than 20 percent， release of major pollutants has been consistently declining and the number of days of heavy air pollution in key cities have decreased by 50 percent.

“We will consolidate the gains in the fight to defend the blue of our skies，” declared Premier Li Keqiang in the government work report. “This year， we will cut sulfur dioxide and nitrogen oxide emissions by 3 percent and achieve a continuous decline in PM2.5 density in key areas. We will encourage upgrading in steel and other industries to achieve ultra-low emissions. We will raise standards on the emission of pollutants and set deadlines for meeting required discharge standards.”

“Environmental protection revenue accounts for very little of total state revenues，” reveals Cai Zili， director of the Property and Behavior Taxation Department at the State Administration of Taxation.“Collecting the tax is not about increasing revenues but building a green tax system and encouraging environmental protection by leveraging taxes. It drives enterprises to take environmental costs into consideration when calculating their budgets.”

“The new tax serves as one step of ecological progress，” says Dong. “In recent years， the Chinese government has increasingly used taxation to motivate enterprises to reduce emissions while increasing investment in environmental protection.” This year， the central government budget allocates 40.5 billion yuan （US$6.43 billion） to prevent and manage pollution in air， water and soil， 6.46 billion yuan more than the previous year and the largest sum in recent years.

At the recent Two Sessions， the Chinese government designated“forestalling and defusing major risks，”“poverty alleviation” and “addressing pollution” as three critical battles. The latest constitutional amendment includes the concept of “ecological civilization.” A new Ministry of Ecological Environment has been launched， according to an institutional restructuring plan of the State Council approved by the National People’s Congress， the country’s top legislature. China has shifted to high-speed ecological advancement.