Four Chinese provinces have applied to trial new environmental taxes being worked on by the Ministry of Finance, the State Administration of Taxation, and the Ministry of Environmental Protection, even before the proposals have been accepted by the State Council. The impact on companies will be minimal, however. The plans, which Hubei, Hunan, Jiangxi and Gansu provinces want to try out, will largely be concerned with streamlining existing legislation aimed at curbing pollution. They are still at an early stage and many details have yet to be worked out.
"An environmental tax is likely levied on the volume of pollutants discharged, especially air contaminants such as carbon dioxide, sewage, solid waste, and noise, under the polluter pays principle," said Yongjun Peter Ni, a tax partner at White & Case in China. "Its details such as the tax bases and rates are not yet decided."
Wei Cui, a professor at China University of Political Science and Law, says that several options have been advanced by government think-tanks, but they are not known as sources of imaginative tax policy.
"One is simply to convert existing pollution fees into a tax collected by tax agencies," said Cui. "Hubei supposedly already does this. Current pollution fees target water pollution but apparently do not cover emissions into the atmosphere."
China recently overtook the US as the world's largest carbon emitter. 70% of its energy is generated by coal, which is causing serious problems in the country.
There are concerns, however, that the new plans do not go far enough to tackle the country's grave environmental problems.
"The environmental tax will help, but it will not be able to solve China's environmental problems," said Ni. "The mentality is still on the side of economic growth, despite huge environmental concerns. Based on existing reports, the environmental tax does not appear to have teeth at least in the short-term."
Ni believes that if the government approves the local trials, the new policies could be implemented soon. Though national environmental taxes are still a long way off, there appears to be a strong appetite in China for reform.
"The environmental tax is not expected to significantly affect the financial burdens of taxpayers in the short-term, as it is designed to replace the pollutant discharge fee system, which became effective on July 1 2003 under the State Council Order 369," said Ni. "Recent negative media reports on environmental accidents also probably help mute any opposition from the industries."
Cui points out that potential opposition from industries will greatly depend on what forms the new taxes will take and the specifics remain to be seen.
Environmentalists remain cautious, but optimistic.
"A carbon tax would be an important step forward," a spokeswoman for Greenpeace China said. "But energy consumption is still growing very quickly. There'll still be a long way to go."
