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December 26, 2016

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China to levy taxes to fight pollution

CHINA’S top legislature passed a law yesterday that will levy specific environmental protection taxes on industry for the first time from January 1, 2018.

The law will be key to fighting pollution, said Wang Jianfan, director of the Ministry of Finance tax policy department.

China has collected a “pollutant discharge fee” since 1979. In 2015, it collected 17.3 billion yuan (US$2.5 billion) from some 280,000 businesses, Wang said.

However, some local governments exploit loopholes and exempt enterprises that are otherwise big contributors to fiscal revenue. For years, regulators have suggested replacing the fee system with a law.

“The new law will reduce interference from government,” Wang told a press conference. It would also improve taxpayers’ environmental awareness, forcing companies to upgrade technology and shift to cleaner production.

Under the new law, companies will pay taxes ranging from 350 to 11,200 yuan per month for noise, according to their decibel level. It also set rates of 1.2 yuan on stipulated quantities of air pollutants, 1.4 yuan on water pollutants and a range of 5 to 1,000 yuan for each ton of solid waste.

For instance, polluters will pay 1.2 yuan for emission of 0.95 kilograms of sulfur dioxide and 1.4 yuan for 1 kilogram of chemical oxygen demand. Carbon dioxide is not included in the levying list.

Provincial-level governments can raise the rates for air and water pollution by up to 10 times after approval by the local legislatures. Lower rates may also be applicable if emission are less than national standards.

The law only targets enterprises and public institutions that discharge listed pollutants directly into the environment.

Punishment for evasion or fraud are not specified, but offenders will be held liable in line with the law on administration of taxation and the environmental law.

With more than a year still to go before the law comes into effect, Wang said authorities would make preparations including drafting a regulation for implementation of the law. He said that revenue would all go to local governments, and would not reduce their capability to spend on environmental protection.

China has not previously imposed any specific environmental taxes, and the new levy will replace the earlier system of miscellaneous charges that are regarded as too low to deter polluters.

“The core purpose (of the policy) isn’t to increase taxes, but is to improve the system, and encourage enterprises to reduce emissions — the more they emit the more they will pay, and the less they emit the less they will pay,” Environment Minister Chen Jining said earlier this year.

The details of the new law have been fiercely contested by various national and local bodies, and the law has been subject to repeated delays.

Some government researchers have also argued that carbon dioxide and other greenhouse gases should be included in the plans.

Jia Kang of the Ministry of Finance’s Institute of Fiscal Science suggested that to avoid increasing the tax burden on firms, other business taxes should be cut and replaced by the environmental tax, which would give authorities a more powerful tool to force a company to improve its environmental performance.


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