China’s environment tax law comes into effect

As part of its efforts to fight against pollution, China rolled out its first environment protection tax law on 1 January. The tax law, which replaced a decades-long pollutant discharge fee system, targets enterprises and public institutions that discharge listed pollutants directly into the environment, including heavy polluters such as furniture manufacturers across the country. Companies will pay taxes for producing noise, air and water pollutants, as well as solid waste, according to the law.

Provincial-level governments can decide the tax rates in the range given by the law based on the local situation. Under the new law, take instance of a furniture manufacturer who enjoys an annual revenue of 50 million yuan, the company may report an overall tax rate of 300,000 yuan to 700,000 yuan, meaning an up to 2% increase on the factory price of its product, according to industry analysts.

China has collected a “pollutant discharge fee” since 1979, however, some local governments exploit loopholes and exempt enterprises which are otherwise big contributors to fiscal revenue. Now, such interference from local governments will be reduced since any tax reduction and exemption has to go through strict approval procedures and be documented.

Tackling pollution has been listed as one of “the three tough battles” that China aims to win in the next three years, according to the Central Economic Work Conference that concluded in December. The environmental tax – which will levy fees according to discharges of sulphur dioxide, sewage and other contaminants – is intended as a disincentive for polluting industries, many of which have flocked to China to take advantage of low costs and weak regulations.

“The launch of the environmental tax is more serious than the pollutant discharge fee system and marks China’s first real effort to use financial mechanisms to curb pollution,” Liang Yinlei, Partner of Tax Department at Ernst & Young Great China, said. “Some manufacturers may buy more environmental friendly equipment to reduce its sewage waste in order to pay less tax,” he added.

Official data showed from January to November, China investigated over 35,600 violations of environmental protection laws and regulations, up more than 102 percent from 2016 year-on-year.


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