Environmental taxation reform in China
| Author | Li Xiaoqiong/Ge Chazhong/Dong Zhanfeng |
| Pages | 139-160 |
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Ver Nota270
Since the mid-1990s, China has started to study and explore the application of environmental tax and fee policy in environmental management. Currently, the Chinese government is paying more attention to the
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research and establishment of an environmental taxation system. This chapter will not only introduce the background, progress, and issues of environmental tax policy in China, but also propose the design of the environmental taxation system and its implementation strategy.
Environmental taxation policy is used as an economic instrument for pollution control/prevention, emission reduction, and resource conservation. Environmental Taxation Reform (ETR) is critical to support sustainable macroeconomic, social, and environmental development in China.
In a broad sense, ETR includes the establishment of environmental tax, the reformation of fiscal and preferential policies related to environment and natural resources, as well as the elimination of inappropriate subsidy and charge policies that are adverse to the environment. In a narrow sense, ETR means collecting or reducing taxes from entities or individuals that are engaged in exploiting and utilizing, or protecting, environmental resources, according to the extent of the exploitation, pollution or protection of environment.
After the 1994 fiscal and taxation reform, there are 20 types of taxes in the current taxation system in China271, with value-added tax, enterprise income tax, and business tax as the main ones. In 2011, the total tax revenue in China was approximately CNY 8973.84 billion272. Figure 1 shows the breakdown of China tax revenue in 2011. Although there are environmental benefits brought by the implementation of environmentally related taxes, they were not originally designed for environmental
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protection. More environmental factors shall be considered during ETR and the further taxation design phase.
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At present, the greening extent of environmental related taxation in China is relatively low and the environmental protection function of the Chinese tax system structure is weak. The function of environmental related taxation to stimulate behaviour for environmental protection is inadequate. For example, the resource tax is mainly used for regulating resource differential income and reflecting the resource scarcity value. The environmental protection function of these relevant taxes is mainly embodied in tax expenditure policy. Although the total revenue of taxes related to environmental protection is increasing gradually, rising from 10% to 14% between 2006 and 2011, as shown in Table 1, it is still relatively low compared with the figures of OECD countries.
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The importance and the necessity of the ETR have been already realized by the Chinese government. The governmental supports on ETR are mainly in three areas, which are listed below:
• The first is to further greening the current tax system in China, which is gives special consideration to environmental protection and resource conversation during the reform of environmental related taxes;
• Secondly, to introduce new types of taxes specifically designed for environmental protection, such as levy taxes on industrial SO2 emission and waste water discharge;
• And to empathize environmental «fee to tax» reform, such as pollution levy to environmental tax.
During the 11th and the 12th Five Year Plan (FYP), the Chinese government has issued several policy documents to guide and support the environmental taxation reform. First of all, in June 2007, the State Council issued the Comprehensive Working Approach for Energy Efficiency and Emission Reduction in the 11thFYP, which initially proposed to introduce environmental tax in China. And the 2009 and 2010 State Council’s Approval of the Suggestion of the National Development and Reformation Committee (NDRC) on the Economic System Reform recommended carrying out the ETR proposal.
According to the 12thFYP of National Environmental Regulation and Environmental Economics and Policy issued by the Ministry of Environmen-
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tal Protection (MEP), the current tax system will be greened, such as to include heavily polluted and resource consuming products in the consumption tax. In 2011, the Comprehensive Working Approach for Energy Efficiency and Emission Reduction in the 12th FYP actively promoted the reform of the resource tax, including recommendations to liquidate and cancel inappropriate fees and charges on mineral resources. On March18th 2012, Circular of the State Council on Approving and Forwarding the Opinions on Deepening the Economic System Reform in 2012 to the NDRC clearly specified to put forward the legislation of environmental tax.
Since 2007, the MEP (the former State Environmental Protection Agency), Ministry of Finance (MOF) and State Administration of Taxation (SAT) has launched the ETR research and pilot program. In August 2008, the SAT designated research groups to carry out investigation in the local taxation agencies, environmental protection departments and enterprises in Inner Mongolia, Guangdong, Shandong, Guangxi and Hebei Provinces. The investigation included but was not limited to the importance to, the willingness of, and the impact on the stakeholders upon levying environmental tax, which has provided an important basis for the design of ETR scheme and the following implementation. Most of the stakeholders agreed with the ETR.
Until now, there is no specific environmental tax taking environmental protection as major policy objectives in China. The ETR during the period of «the 11thand 12th FYP» has been paid with great attention by this country and is of increasing concern from the whole society. The MEP, MOF and SAT and other relevant departments have strengthened communication and coordination among each other, actively launched extensive and in-depth preliminary investigation and special research, and initially formed the scheme of ETR.
In 2011, the State Council approved the Request of Levying Environmental Tax which was jointly submitted by MOF, MEP, and SAT. A leading group and a working group has been setup by the Legislative Affairs
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Office of State Council and the three departments, to carry out the research and drafting of environmental tax legislation. A group of experts, consisting of legal, environmental, financial, and taxation specialists and officers from MOF, MEP, SAT and their research organizations such as Chinese Academy for Environmental Planning (CAEP), was designated the detailed legislation assignment. Currently, the Environmental Tax Law is being drafted, and has been listed in the 2012 legislation plan of the State Council.
During the past decade, environmental related taxes, such as resource tax, consumption tax, custom tax, enterprise income tax, and value-added tax, have undergone major changes in order to green the current taxation system in China. Detailed reform progress will be discussed in Chapter 2.
As there is no specific environmental tax available in China right now, major progress of the tax system greening reform is still focused on the other types of taxes related to environmental protection and resource conservation, such as the greening of taxation policies for resource tax, consumption tax, custom tax, enterprise income tax, and value-added tax. The price-based reform of resource tax, the vehicle purchase tax, and the preferential tax rate of enterprise income tax on environmental protection products and special energy and water conservation equipment are key reform fields.
In order to improve the environmental related tax system in China, MOF and SAT jointly issued the Rules on Certain Issues Concerning Resource Tax Reform of Crude Oil and Natural Gas in Xinjiang in June2010, which released the pilot scheme for the resource tax on crude oil and natural gas,
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changing from volume-based to price-based in Xinjiang province, according to which, the resource tax rate is adjusted from CNY30/ton for crude oil and CNY7-9/m3 for natural gas to 5% of the sales price. By 1 December 2010, the pilot scheme has been expanded to twelve western provinces (regions) of China, such as Inner Mongolia, Gansu, Sichuan, Qinghai, Guizhou and Ningxia provinces etc.
In September 2011, the State Council released the Decision on the Modification of the Tentative Regulation on Resource Tax, which is effective from 1 November 2011. The reform included the price-based resource taxation in Chinese regulation. The tax rate is 5% of the sales price. It also changed the fees for the use of mining area charged on offshore oil-gas fields to a resource tax.
From the above policies released, a new...
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