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China’s environment tax law comes into effect

Lydia Chen

By Lydia Chen

February 6, 2018

As part of its effort to fight against pollution, China unveiled its first environmental protection tax law on January 1. The law replaces a decades-old pollutant discharge fee targeting enterprises and public institutions discharging listed pollutants directly into the environment. Included are heavy polluters such as furniture manufacturers.

According to the law, companies will be levied tax for producing noise, air and water pollutants, as well as solid waste. Tax rates range from 1.2 yuan to 12 yuan per unit of atmospheric pollution, 1.4 yuan to 14 yuan per unit of water pollution, 5 yuan per ton of coal waste and 1,000 yuan per ton of “hazardous waste”.  Provincial-level governments can vary rates within the range based on the local situation.

By way of example, a furniture manufacturer enjoying annual revenues of 50 million yuan may be levied an environmental protection tax of 300,000 to 700,000 yuan, resulting in a 2% cost increase on its production, according to industry analysts.

China has collected a “pollutant discharge fee” since 1979, however, some local governments eased up on enterprises which make large contributions to local revenues.  Now such latitude on the part of local governments will be curtailed as any exemptions/discounts have to go through strict approval procedures and be documented.

Tackling pollution has been bill boarded as one of “the three tough battles” that China aims to overcome in the next three years, according to the Central Economic Work Conference that concluded in December.

The environmental protection tax is intended to penalize polluting industries, many of which flocked to China to take advantage of low costs and weak regulations.

“The environmental protection tax is more robust 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, told Jiefang Daily earlier.

“Some manufacturers may buy more environmental friendly systems to reduce effluent discharge in order to pay less tax,” he added.

Official data for the first 11 months of 2017 showed China investigated over 35,600 violations of environmental protection laws and regulations, up more than 102 percent from 2016.