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China pollution

Are China’s new green taxes tough enough to fight pollution?

Although tax collectors will have more power to collect the new levy, local authorities in some of the worst affected regions have kept rates low

PUBLISHED : Saturday, 16 December, 2017, 11:53am
UPDATED : Saturday, 16 December, 2017, 11:53am

As China prepares to impose new levies on the discharge of industrial pollutants, environmentalists say the system needs tougher tax rates and more stringent monitoring to deter the country’s polluters.

Starting from January, mainland factories will be taxed for producing air, water, solid waste and noise pollution, a move the government says will be more effective than the current “emission fee” system in addressing serious industrial pollution.

While emission fees were collected by environmental regulators and were plagued by defaults, the environmental tax will be collected by tax officials with more power to enforce the charges.

In a bid to give local authorities more incentives to charge polluters, all the environmental taxes will go to local government revenues, compared with 90 per cent of the emission fees.

However, many heavily polluted regions have chosen to set their tax rates low, prompting concerns that cadres are prioritising the local economy over the environment.

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The new environmental protection tax law allows provincial governments to set their own tax rates based on the region’s environmental, economic and social conditions.

The rates have to fall within set ranges. On air pollution, for example, the levy is 1.2 yuan (US$18 US cents) to 12 yuan per unit of atmospheric pollution. The tax for water pollution is 1.4 yuan to 14 yuan per unit.

Local governments have already set their rates ahead of the implementation of the new tax. Liaoning, a northeastern province in China’s former industrial heartland, will be charging the lowest possible rates. It recorded the country’s lowest economic growth rates last year.

Smog-prone Shanxi province, China’s biggest coal producing region, has opted for a 1.8 yuan levy on air pollution and 2.1 yuan for water.

Even affluent Guangdong province has set the relatively low rates of 1.8 yuan and 2.8 yuan, arguing that the taxes should not cause big an impact on the costs and profitability of local businesses.

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“Considering the slowing economy and the ability to pay of enterprises, the adjustment [in emission charges] should not be too large,” the provincial authorities said in a draft regulation.

By contrast, Beijing and its surrounding regions, which are under political pressure to reduce their notorious smog levels, have set tax rates relatively high. The capital has decided to tax local polluters at the highest rates of 12 yuan and 14 yuan per unit measured of pollution.

Kenneth Leung, a China tax expert at the accounting firm EY, said the variation in taxes was a result of local administrations balancing the pressures of cleaning the environment with supporting their local economy.

“Liaoning is worried about its heavy industries,” Leung said. “Factories there are already suffering. They may not even survive if they are charged at higher rates.”

Analysts add that the tax rates are unlikely to be tough enough to force factories to invest in equipment or new processes to control emissions – as the government hopes.

Lauri Myllyvirta, a Beijing-based campaigner with the environmental group Greenpeace, said many officials had failed to recognise that failing to tackle pollution would cost the authorities even more in the long-term.

“The idea that environmental taxes impose a burden on the economy is definitely misguided,” Myllyvirta said. “Industrial air pollution alone costs China more than 600 billion yuan per year, more than 10 times the projected tax haul.”

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The effectiveness of the environmental tax also depends on the accuracy and authenticity of pollution data, analysts said.

The environmental tax law states that enterprises submit tax reports every quarter based on the emission levels recorded with their own monitoring devices and tax officials should compare the data with those recorded by local environmental authorities.

Ma Jun, a leading environmentalist in Beijing and the director of the Institute of Public and Environmental Affairs, said public pressure should play a role in preventing companies from manipulating the numbers to avoid high tax payment.

“Data accuracy is the key,” Ma said. “We hope the monitoring system can be made more transparent and companies can actually be held accountable.”