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POLICY EXPLANATION: Environmental Protection Tax Law
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“Is there any enterprise willing to control their pollution and pay a much higher legal cost when the illegal cost is lower?” asks Zhou Jian, the undersecretary of the Ministry of Environmental Protection (MEP) of the State Council. “Nowadays the pollution discharge cost is much lower than the pollution control costs. Enterprises would rather pay the pollution discharge fees instead of controlling the pollution. The most important thing is to enact the Environmental Protection Tax (EPT) law to increase the pollution discharge cost substantially”.
 
At the press conference held on World Environment Day by the State Council’s news office last year (June 5, 2012), a representative of the MEP said, “The Ministry of Finance, MEP and the State Bureau of Taxation (SBT) have begun to cooperate to draft the EPT law.” Since then, the EPT law’s drafting was put on the table and it will be high on the agenda of the State Council’s legislative work plan in 2012. The legislative affairs office of the State Council told the ministries to organise a special group to discuss and write the draft last year. The group has recently submitted the finished draft of the EPT law to several associations such as the China national coal association, China Electricity Council and the China nonferrous metals industry association for their opinions.
 
Under the current environmental protection management system, the government still relies on an administrative measure which has a huge cost and inefficient performance. In its current manifestation, people also find that it interferes with market competition and causes social contradictions. In addition, from an environmental economic means, the current tax rate of the natural resources and pollutants does not effectively reflect the environmental costs. There is poor enforcement to pollution charges, local government protectionism, etc.
 
When compared with the current pollutant discharge fee method, the draft of the EPT law has made several improvements. Firstly, the chosen number of discharge factors leviable from every sewage draining exit has been increased from 3 to 5; secondly, the tax rate is much higher than the discharge fee, thus the current situation of enterprises preferring to pay the pollution discharge fees instead of controlling their pollution will change; thirdly, the tax scope is broad enough so that even general industrial solid wastes are in the leviable range; fourthly, the cooperation of the ministries is twofold, the SBT is in charge of collecting the EPT while the MEP is responsible for the determining the leviable pollutant’s type and quantity. 
 
Another highlight of the draft is that a carbon dioxide discharge tax (Carbon tax) is included in the EPT which was not expected by the industry or critics alike. Most of the coal and coal products, coke oven gas, crude oil, gasoline, diesel, fuel oil, liquefied petroleum gas, natural gas and other fossil fuels have been included under the EPT’s scope. In addition, the enterprises that adopt emission reduction and carbon recycling technology in the major energy-consuming industries will earn tax benefits in relation to the Carbon tax. Furthermore, taxpayers who adopt carbon capture and sequestration technology and are practical in reducing their carbon emissions can receive credit towards their carbon emission capacity limitation.
 
With regards to when the EPT will take effect, an MEP spokesperson said that, “In order to reduce the reform’s resistance and make preparation for the comprehensive EPT law, we will chose some specific regions where the protection needs are the greatest to be experimental areas. At the very beginning, it will be impossible to levy all categories of the EPT, we will have to determine which ones will be most important then expand the scope of collection gradually at later dates. For the Carbon tax, it will begin when our nation needs to respond to climate change according to international climate negotiations, it will match other tax cuts and returns, not increase the whole amount of tax burdens.”
 
Some environmental protection experts believe that the impact of the EPT law is significant and that the environmental legal system will benefit greatly from it. Current environmental protection laws including the prevention of air pollution law, prevention of water pollution law and a series of others, have so far not been adapted to today’s needs and must be modified. With the enacting of the EPT law, the environmental legal system becomes more and more mature. “Once the pollution discharge fee is changed according to the EPT, the government will increase financing to manage the environment. It will also help to improve public environmental awareness. At the same time, the EPT will also contribute to the elimination of high pollution enterprises and the optimization of the industrial structure,” said Shi Wenzheng, director of the finance and tax law research centre at China University of Political Science and Law. By increasing the pollution discharge costs, the EPT will be a main part of the environmental economic policy and play a major role in the regulation of enterprises’ environmental behaviour. Some financial experts also suggest that an easy-operating environmental audit should be gradually introduced. All the enterprises that impact the environment must disclose their environmental information; for enterprises with heavy pollution, audit authorities will review their annual pollution discharge and relevant finances to make the result known and accepted by the public. 
 
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There are also some critics of the EPT law. Some experts worry that because the determination power of the applicable tax rate belongs to local government, it may trigger a 'Bargaining game' between the high pollution enterprises and local governments. Meanwhile, as the subjects that will pay the EPT, the high pollution industry association put forward dissenting opinions to the newly designed taxation, as they believe that the extra taxes will give their industry hundreds of billions of additional costs and lead to a 'living beyond their means' situation in the power industry.  
 
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According to the Chinese legislature, the EPT law will pass the signature procedure before being submitted to the State Council for approval, then the National People’s Congress will examine it, and once that is complete, it will finally be entered into force by law. “It is really difficult to estimate the effective timeframe of the EPT law’s enactment because it depends on the efficiency of every relevant government department and the decisions of the authorities.” said Li Zuojun, the deputy director of the institute for resources and environmental policy of the State Council development research centre. “Although a lot of people hope to speed up the legislative process, we still need to be patient and monitor the development of the situation.”


By Simon Bai
 
 
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