China’s first environmental protection tax law expected to take effect in 2018

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The PRC Environmental Protection Tax Law was passed during the 25th session of the 12th National People’s Congress (NPC) Standing Committee on December 25, and will come into effect on January 1, 2018.

The environmental protection tax law is the first single category tax law passed by the NPC’s Standing Committee. It is also China’s first “green tax law”, with the expressed purpose of promoting environmental protection.

The Law contains five chapters and 28 articles, including general provisions, taxation basis and payable tax rates, tax relief, taxation management and supplementary provisions.

The general concept of the tax law is to shift from “fees” towards “taxes”, that is to turn the system of pollution discharge fees into a system of environmental protection taxes. The law aims to “protect and improve the environment, reduce pollution discharges, and promote ecological civilization”. According to its provisions, the payers of this tax shall include “enterprises, public institutions and other producers or operations that directly discharge pollutants into the environment”, and taxable pollutants refer to atmospheric pollutants, water pollutants, solid waste and construction site noise.

Wang Jianfan, the Head of the Taxation Administration of the Ministry of Finance, commented that setting up the environmental protection tax is an important step towards implementing the policies issued by the Central Committee of the CPC and the State Council. The Law aims to tackle the issue of ineffective enforcement in levying pollution discharge fees and interference by the local governments; to raise taxpayers’ environmental protection awareness and rates of compliance; to strengthen enterprises’ responsibility in pollution reduction; to establish a green tax system that will facilitate the adjustment of the economic structure and promote the transformation of the development mode; and to regulate the government’s distribution, optimize the structure of fiscal revenue and strengthen budgetary discipline.

It is reported that the main difference between the pollution discharge fee and the environmental protection tax is that additional categories of tax relief are set up to incentivize pollution reduction under the environmental protection tax. Previously, only one category of tax relief was provided under the system of pollution discharge fees. Namely, taxpayers could receive 50% off if they lowered their atmospheric or water pollution by half of the national and provincial standards. In order to incentivize enterprises, the new tax law adds another tax relief category: when the concentration value is 70% below the proscribed standard, taxpayers receive a 75% reduction on their payable tax.

Lastly, the law standardizes the administrative procedures for the collection of the environmental protection tax. The present pollution discharge fee is collected by the environmental protection agencies, while the environmental protection tax will be collected and regulated by taxation authorities in accordance with the Environmental Protection Tax Law and PRC Law of the Administration of Tax Collection.