On Dec 25th 2016, the Law of Environmental Protection Tax was passed by the Standing Committee of The National People’s Congress of China and was signed and issued by President Jinping Xi. The Environmental Protection Law will go into effect from Jan 1st, 2018 and provides the strongest legal foundation to date for enforcement of environmental protection measures, replacing the pollutants emission fee system which has been in place for almost 40 years. It will also impose higher fees on industry which is the basic incentive for industry to reduce emissions and other polluting activities.
Local governments are encouraged to upgrade their charge standards. For example, the charge standard used by the Beijing government is 8 to 9 times the minimum level. A cap of 10 times the minimum tax has been set in an effort to find a happy medium between environmental protection and economic development. The older emission fee system offered major incentives for enterprise which were able to reduce their overall emission levels to less than 50% of the limit. The new environmental protection tax preserves the essence of this incentive scheme and stipulates that enterprises that reduce their emissions to just 30% - 50% of the limit will be subject to a fee reduction of 25%.
Two appendices are attached with the Law, stipulating the scope, pollution equivalents and taxation standards applicable to various pollutants, including atmospheric pollutants, water pollutants, solid wastes and noises. In the old system the proceeds of the emission fees were split by central government and local government at a ratio of 1:9. Under the new law all tax collected will be given to local government. The tax is calculated on a monthly basis and enterprises should declare and pay on a quarterly basis.
