News on Environmental Protection Tax in China

On January 1, 2018, the Chinese government implemented a new environmental tax policy, effectively ending the pollutant discharge fee that had been in effect for the past 40 years.

The Environmental Protection Tax marks the beginning of a slew of new policies aimed at getting China’s pollution under control and will undoubtedly affect businesses, especially manufacturing firms, albeit in varying ways.

While the ultimate impact that the tax will have in addressing China’s pollution issues is unclear, businesses in the country should prepare themselves for more stringent enforcement of both new and existing environmental laws and regulations.

There are also some important exemptions to the Environmental Protection Tax. Firms that discharge pollutants directly to centralized sewage and waste treatment facilities and those that dispose solid wastes in facilities that meet the local and national standards are exempt from the tax. Certain practices are also exempt from the environmental protection tax, such as pollutants discharged from agricultural production and pollutants discharged from motor vehicles and other mobile sources, for example.

Companies involved in pollution-intensive industries such as manufacturing should expect an overall rise on the cost of doing business.

Given the flexibility of the tax rates and the lack of an independent monitoring system, it is doubtful whether or not the new tax policy will make a significant impact on pollution levels. However, it is one of the first policies aimed directly at tackling the lack of enforcement at the local level, sending a strong signal to local officials that Beijing is serious about the issue. China already has a number of laws and regulations aimed at protecting the environment, but lack of enforcement has historically impeded their effectiveness – until recently. 

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