China Considers Environmental Tax

Published: 2009-07-01

News, page 3
Issue 423, June 15, 2009
Translated by Liu Peng

Original article:

China has edged closer to levying an environmental tax on polluters, but remains divided over how to introduce the tax.

Although the idea of reforming the system by which polluters are taxed was first proposed two years ago, it was fast-tracked in May, along with changes to resource and property tax, by the National Development and Reform Commission in its state-council-approved plan for deepening economic reforms.

Last week the Economic Observer learned that expert opinions based on research conducted into the proposed tax had started to flow through to China's Ministry of Finance (MOF) and Ministry of Environmental Protection (MOEP).

However, a major issue of contention remained. Departments disagree on whether the new tax should be introduced as simply an addition to existing excise tax legislation, a shift which would require little more than the approval of the State Council, and hence expedite the introduction of the new tax, or as an independent piece of legislation, a move which would require scrutiny and approval from the country's top legislative body, the National People's Congress (NPC).

The EO learned the MOF and MOEP were in the process of designing tentative schemes in line with each of these two proposals.

Current Emission Charges System Flawed

China began imposing charges on the emissions produced by polluting companies in 1982. At present, revenue from these fees amounts to approximately 20 billion yuan nationwide each year. Local environmental protection agencies are responsible for collecting the fees.

Revenue from these emission fees vary from region to region, with provinces rich in energy resources tending to raise more revenue.

For instance, Shanxi province, China's coal production base, collected 2.7 billion yuan in pollution fees in 2007, while provinces that lacked resources received less than 100 million yuan in pollution charges.

However, according to a source, over the past 20 years there have been persistent problems with the collection of charges and misallocation of revenue.
As a result, these pollution charges have had little effect on either reducing emissions or controlling environmental pollution.

According to a review carried out by the Inner Mongolia Autonomous Region's auditing department in 2008, the imposition and management of emission charges was riddled with problems.

In some areas fees were set based on personal relationships and were open to negotiation; some local governments illegally reduced or even exempted companies from paying charges and some companies were permitted to use physical assets like cars, bricks, cement and other construction materials to pay for emission fees.

Moreover, some local environmental protection agencies were found to have secretly retained some of the revenue they had collected, instead of passing it on to the autonomous regional and central government.

For instance, in China's Hubei province, the environmental protection bureau of Hanchuan city hasn't handed over the revenue they have raised from emission fees to the central treasury for three years.

Some environmental protection agencies collect the fees, but do little to control environmental pollution more generally, others collect the fees and spend them on improving their own circumstances, a case in point being the Shanxi provincial environmental protection department's embezzling of 30 million yuan to construct a new office building.

Given the scarcity of natural resources, the urgency of controlling pollution and the desire to reduce energy-consumption levels, there is an ever-increasing need for China to implement an environmental tax to control the serious problem of environmental pollution.

According to the above source, by replacing emission charges with an environment tax, China can intensify the control and enforceability of its environment protection policies.

However, according to a local official, research into an environmental tax had discovered that some local environmental protection agencies were opposed to the introduction of an environmental tax, preferring instead the current system of collecting emission charges.

Ge Chazhong, director of the Chinese Academy for Environmental Planning's Development and Cooperation Institute, suggested retaining the present emissions charge while also enacting a new environmental tax.

While Professor An Tifu of Renmin University's School of Finance recommends dumping the emissions charge with all its attendant problems and simply replacing it with a new environmental tax.

Environmental Tax or an Excise Tax?

Recently, Yuan Qingdan, director of the MOEPs environmental policy division, revealed that the ministry was formulating an independent environment tax, all the revenue of which would hopefully be earmarked for a fund aimed at curbing environmental pollution.

They're currently considering applying the tax to sulfur dioxide and carbon dioxide emissions along with waste water discharge.

Meanwhile, the MOF was considering slapping an excise tax on products that are either seriously harmful to the environment or resource-intensive. Products under consideration include paper, fertilizer and cement.

Some argue that the complications involved in enacting a new independent tax program will slow the process down. As the introduction of an independent environment tax, would require the enactment of supplementary laws and would require the NPCs approval.

If the government wants to fast track the launch of an environment tax, it would make more sense to simply introduce the tax as an addition to existing excise tax legislation.

A model for this approach is the recent successful introduction of the new fuel tax, which by-passed the NPC by being tacked on to the existing consumption tax legislation.

If an independent environment tax was created, revenues would flow directly into local treasury coffers. However, if the environment tax was introduced as an additional form of excise tax, the central government would retain control of revenue collection and would later transfer a proportion of the funds to local governments.

Links and Sources
Reuters: China Considers Environmental Tax on Polluters
ABC: China Considering Environmental Tax