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Environmental Tax on the Horizon

03-11 13:37 Caijing
Pollution charges are so low that breaking the environmental protection law seems like a more “economical” option for enterprises. In the end, society as a whole is left to bear the consequences of the pollution.

By staff reporter Zheng Meng

A tax law on environmental protection, which was submitted to the State Council over a year ago, is expected to start to go through the legislative procedures in the National People’s Congress (NPC) soon. The heavy smog that pervaded Beijing before this year’s “two sessions” may speed up the process.

China has long relied on pollution charges as a main source of funding for industrial pollution abatement. Statistics from the Ministry of Environmental Protection show that in 2013, China collected nearly 21.61 billion yuan in overall pollution charges, up 5.2 percent year-on-year; meanwhile, a total of 431,100 polluters paid pollution bills, marking an increase of 22.2 percent over the previous year. 

But still, the pollution charges failed to deliver the kind of broad and strong protection for the environment as required by relevant laws and regulations, due largely to the lack of enforceability of taxes and a strong collection and management system.

For starters, pollution charges are so low that breaking the environmental protection law seems like a more “economical” option for enterprises. In practice, pollution charges only account for 50 percent of the operating costs of pollution abatement facilities; in some cases, the charges are less than 10 percent of the pollution control costs, so it’s no wonder enterprises opt to pay the pollution charges instead of taking measures to contain pollution. In the end, society as a whole is left to bear the consequences of the pollution.

Second, the collection of pollution charges lacks strong legal protection, hence the lack of enforceability. This has led to some unavoidable problems, such as lack of authority, reversion of the burden of proof, insufficient collection rates, and discretionary collection, which made it difficult for pollution charges to deliver the results that an environmental tax should have generated.

This phenomenon has led to calls for replacing pollution charges with an environmental tax, the enactment of which has been postponed repeatedly due to various obstacles.

Pollution charges, which are the predecessor of the environmental tax, apply to a wide range of pollutants, including exhaust gas, waste water, garbage, noise pollution, etc. However, the scope of the environmental tax should not be defined too broadly at the outset; rather, it would be better to start with key pollutants that are easy to target, namely exhaust gas and waste water, and expand to other types of pollution after the environmental tax becomes widely accepted. 

Theoretically, as an economic instrument designed to contain pollution, the amount of environmental tax levied on a polluter shall be no less than the cost of eliminating the pollution it created. Considering the reality, Su Ming, deputy director of the Research Institute of Fiscal Science, Ministry of Finance, suggests the rate be set somewhere between existing pollution charges and the actual pollution abatement cost. The rate of the environmental tax must be higher than the current pollution charges to make an impact, says Su.

There is currently a debate on whether the environmental protection authority or the tax authority shall lead the collection and management of the proposed environmental tax. Once the tax comes into force, the distribution of the tax revenue among central and local governments will become the latter’s primary concern.

People are also split over the use of the tax revenue. Some suggest the revenue be earmarked for environmental improvement; others contend the money should be incorporated into fiscal revenue and used in a coordinated manner. 

Jiang Kejuan, who participated in drafting the aforementioned tax law, said that the environmental tax has been discussed for a long time, and if it is promptly put before the NPC, its chances of getting approved in one stroke are high.

Jiang argued the proposed tax law is a good thing, but environmental improvement cannot just rely on a pollution tax; rather, legislation should be made to enable the pressing of criminal charges against heads of heavy polluters and the imposing of high fines on polluting companies.

Full article in Chinese: http://magazine.caijing.com.cn/2014-03-09/113992470.html

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