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China: Environmental Tax

(June 23, 2015) On June 10, 2015, the Legislative Affairs Office of China’s State Council issued a draft environmental tax law for the purpose of solicitating opinions from the public. The draft law was prepared by the Ministry of Finance, the State Administration of Taxation, and the Ministry of Environmental Protection. The government units concerned and members of the public have until July 9, 2015, to submit their views. (State Council Legislation Affairs Office Notice on Public Solicitation of Opinions on the Environmental Protection Taxation Law of the People’s Republic of China (Draft for Soliciting Opinions) [with hyperlinks to draft text and to explanatory note], Legislative Affairs Office of the State Council P.R. China website (June 10, 2015) (in Chinese); Environmental Protection Tax Law of the People’s Republic of China (Draft for Soliciting Opinions), CHINA LAW TRANSLATE (June 10, 2015).)

Reportedly, “the tax rates applicable to the different emissions do not deviate significantly from the rates of the fees currently imposed on enterprises polluting the environment and will be determined by the provincial governments with due reference to local circumstances.” (Shiqi Ma, China (People’s Rep.): Draft Law on Environmental Tax Released for Public Consultation, TAX NEWS SERVICE (June 15, 2015), International Bureau of Fiscal Documentation online subscription database.) The draft law sets forth four categories that are the basis for collecting taxes for polluting the environment:

  • air pollution (determined by a pollution equivalent number converted from the pollutant emission amount);
  • water pollution (determined by a pollution equivalent number converted from the pollutant material amount);
  • solid waste (determined by the amount discharged); and
  • building construction and industrial noise (determined in accordance with the construction area contracted for by the construction unit(s) or according to the number of decibels in excess of national standards, respectively). (Draft for Soliciting Opinions, art. 5.)

Annex 1 of the draft act sets forth the proposed rates for the taxes to be levied per relevant unit on the different categories of pollution, namely, 1.2 yuan (about US$0.20)on air pollutant,; 1.4 yuan (about US$0.23) on water pollutants, a range of 5 to 30 yuan (about US$0.82 to $4.93) for solid waste discharge, 3 yuan (about US$0.49) per square meter for construction surface area noise, and a range of 350-11,200 yuan (about US$57 to $1,841) per month for decibels ranging above the standard from 1 decibel to 16 decibels. (Id. Annex 1; Kathy Chen & David Stanway, China Issues Draft Environmental Tax Law, REUTERS (June 10, 2015).) Annex 2 of the draft act is on the equivalent values for taxation purposes of a long list of taxable pollutants, grouped under the five categories, which are two classes of water pollutants; sewage associated with water; sewage associated with animal husbandry, small business, or tertiary industry; and atmospheric pollutants. (Draft for Soliciting Opinions, Annex 2.)

Certain sectors are eligible for exemption from the environmental tax, including agricultural production (except large-scale farming); mobile pollution sources (such as motor vehicles, locomotives, off-road machinery, ships, and aircraft); and urban sewage treatment plants and domestic waste treatment plants whose discharge of waste does not exceed State standards. (Ma, supra; Draft for Soliciting Opinions, art. 11.)

Taxpayers who fail to declare and pay the tax owed to the taxation authorities or competent tax and environmental protection authorities and who violate the environmental tax law’s provisions and cause “major damage” are to be punished according to the provisions of China’s Taxation Collection and Management Law, Environmental Protection Law, and other relevant laws and regulations. (Draft for Soliciting Opinions, art. 26.)