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Environmental Protection Tax Law takes effect

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China’s Environmental Protection Tax Law took effect on Jan. 1, 2018, with the State Council detailing rules for its enforcement in an effort to better protect the environment and cut pollutant discharge.

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Pollutant discharge

The introduction of the Tax marks an end to the “pollutant discharge fee” which China had been collecting since 1979, but for which many local governments had exploited loopholes to exempt enterprises that were otherwise big contributors to fiscal revenue. The regulation on pollutant discharge fee was abolished when the Environmental Protection Tax Law took effect.

For years, regulators had suggested replacing the fee system with a law, and that law finally became a reality this year.

Environmental Protection Tax Law

The Environmental Protection Tax Law targets enterprises and public institutions that discharge listed pollutants directly into the environment. Under this Law companies will pay taxes for producing noise, air and water pollutants, as well as solid waste.

The regulation specifies taxation targets, the tax-setting basis, conditions for tax reduction and exemptions as well as tax collection management. The rules also make clear the taxation scope of solid waste and centralized sewage treatment areas.

Tax rate

Central authorities will set upper limits for tax rates under the new Law, but will allow local governments to determine the actual tax rates on their own.

Entities covered

The new Tax Law covers only enterprises, public institutions and other business operators, but not individuals.

Use of revenue

The central government will allot revenue from the Environmental Protection Tax to local governments to motivate participation in the fight against pollution.

Projected impact

Analysts predict that up to RMB 50 billion (~ USD $7.68 billion) could be collected annually from the new Tax. From January to November 2017, China investigated over 35,600 violations of environmental protection laws and regulations, up more than 102 percent year on year.

The new regulation also offers a cooperation mechanism between tax and environmental protection authorities for sharing information. Discharge data filed by companies will be deemed “abnormal” if the figure is much lower than its figure the previous year or the amount of its peers without appropriate explanation. The new law requires a review on abnormal data by environment protection authorities.

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