Environmental protection tax is a new environmental tax policy implemented by Chinese government on January 1, 2018, which effectively end 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.
How will such tax affect businesses?
Companies involved in pollution-intensive industries such as manufacturing should expect an overall rise on the cost of doing business. However, the magnitude of the impact will depend on where the firm is located.
Because of this issue, regions with large manufacturing bases may set their tax rates lower to retain the fiscal revenue. Some local governments have already released their tax rates, with Beijing- under pressure from the central government to improve its environment - applying the highest rate on emissions. In contrast, Guangdong, China’s traditional manufacturing hub, will remain an attractive location for manufacturing investment as the pollution taxes there are currently set at relatively low rates, Minot noted.
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.
Minot points out that CO2 is notably absent from the list of pollutants, leaving coal production and other energy producers largely untouched. Minot remarked, “this implies that coal will remain a competitive energy source and combustion engine vehicles a popular method of transportation. This will surely limit the impact the law has on the mitigation of air pollution in the country and in particular the smog issue in urban environments.”
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