On December 25, Xi Jinping signed the 61st Presidential Order of the People's Republic of China: The Environmental Protection Tax Law of the People's Republic of China was adopted at the 25th meeting of the Standing Committee of the 12th National People's Congress on December 25, 2016, and is hereby promulgated, to come into force on January 1, 2018.

The Environmental Protection Tax Law of the People's Republic of China (hereinafter referred to as the Environmental Protection Tax Law) is the first separate tax law reviewed and passed by the Standing Committee of the National People's Congress after the Third Plenary Session of the 18th CPC Central Committee put forward the requirement to "implement the principle of statutory taxation". It is also the first separate tax law in China that specifically embodies the "green tax system" and promotes the construction of ecological civilization. It went through six years of legislation and two reviews. The Environmental Protection Tax Law consists of 5 chapters and 28 articles, namely general provisions, tax base and tax payable, tax reduction and exemption, collection and administration, and supplementary provisions.

Wang Jianfan, Director of the Tax Policy Department of the Ministry of Finance, said that the reform from pollution discharge fees to environmental protection tax is an important measure to implement the decisions and deployments of the Party Central Committee and the State Council. It is conducive to solving the problems of insufficient law enforcement rigidity and local government interference in the pollution discharge fee system; it is conducive to improving taxpayers' environmental awareness and compliance, and strengthening enterprises' responsibility for pollution control and emission reduction; it is conducive to building a green tax system that promotes economic structural adjustment and transformation of development mode; it is conducive to regulating the order of government distribution, optimizing the structure of fiscal revenue, and strengthening budget constraints.

Wang Qing, Deputy Director of the Economic Law Office of the Legislative Affairs Commission of the Standing Committee of the National People's Congress, said that the important principle for formulating the Environmental Protection Tax Law is to achieve a smooth transition between the collection of fees and the imposition of taxes. Tax items are set according to the current pollution discharge fee items, and the current pollution discharge fee standard is used as the lower limit for the tax amount of the environmental protection tax. It is also necessary to give local governments some authorization provisions, and determine specific tax amounts within the scope of authorization according to the needs of environmental governance. Environmental protection tax is different from other taxes. If an enterprise fulfills its environmental protection responsibilities and reduces pollutant emissions, it can pay less tax.

The main difference between the sewage charge and the environmental protection tax is that it adds more tax reduction tiers for emission reduction. The current sewage charge system only stipulates one tier of tax reduction for emission reduction, i.e., if the concentration of taxable air pollutants or water pollutants discharged by a taxpayer is lower than the specified standard by 50%, the environmental protection tax shall be levied at half rate. During the legislative process, opinions were raised that more tiers of tax reductions should be established based on the extent of emission reduction. To encourage enterprises to reduce pollutant emissions, and referring to practices in some regions, the Environmental Protection Tax Law added a tier of tax reduction for emission reduction, i.e., if the concentration of taxable air pollutants or water pollutants discharged by a taxpayer is lower than the specified standard by 30%, the environmental protection tax shall be levied at 75% of the amount.

In addition, the collection and management procedures for the environmental protection tax have been further standardized. The current sewage charge is collected and managed by the environmental protection department. After the change to the environmental protection tax, it will be collected and managed by the tax authorities in accordance with the Environmental Protection Tax Law and the Tax Collection and Administration Law, increasing the standardization and rigidity of law enforcement.

At the same time, considering the professional nature of the collection and management of the environmental protection tax, the Environmental Protection Tax Law emphasizes the information sharing and work coordination mechanism between the environmental protection department and the tax authorities.

Wang Jianfan stated that the current sewage charge is shared between the central and local governments at a ratio of 1:9. After the change from the sewage charge to the environmental protection tax, considering that local governments bear the main responsibility for pollution control, and to motivate local enthusiasm, it is proposed that the environmental protection tax will be entirely local revenue, with the central government no longer sharing it.

According to the Budget Law, tax revenue should be included in the general public budget management,统筹 for ensuring and improving people's livelihood, promoting economic and social development, and maintaining national security, etc., and generally is not linked to specific expenditures. Although the environmental protection tax is not earmarked, it will not reduce the investment in pollution prevention and environmental protection. The original expenditures arranged by the sewage charge will be included in the fiscal budget at the corresponding level and fully guaranteed according to the principle of maintaining the same intensity.

During the "12th Five-Year Plan" period, the national general budget expenditure on energy conservation and environmental protection reached 1.76 trillion yuan, of which the expenditure on energy conservation and environmental protection in 2015 reached 481.4 billion yuan, with a focus on supporting the treatment and prevention of water pollution in the atmosphere, heavy metals, and key river basins. The scale of fiscal budget expenditure and the corresponding scale of pollutant discharge fees far exceed this, and this investment will continue to increase.

Wang Jianfan introduced that the environmental protection tax is a newly levied tax, and the two systems of fee collection and taxation need to be converted, and preparations in policy and collection management are indeed needed. The relevant departments will draft the implementation regulations of the Environmental Protection Tax Law, refine specific policies and collection management measures, and submit them to the State Council for approval in accordance with the procedures. For matters authorized to be decided by local authorities, including determining the specific applicable tax amount and increasing the number of taxable pollutant items at the same discharge outlet, each province (autonomous region, municipality) will determine and submit for approval in accordance with legal procedures. At the same time, preparations for tax collection and management will be made, including establishing a cooperation mechanism between tax and environmental protection departments, debugging the tax collection information system, handing over taxpayer information, and establishing an information exchange platform.

Appendix: Full text of the "Environmental Protection Tax Law"

Environmental Protection Tax Law of the People's Republic of China

(Adopted at the 25th meeting of the Standing Committee of the 12th National People's Congress on December 25, 2016)

Source: National People's Congress Website December 25, 2016 16:20:56

Table of Contents

Chapter I  General Provisions

Chapter II  Tax Basis and Taxable Amount

Chapter III  Tax Exemptions and Reductions

Chapter IV  Collection and Administration

Chapter V  Supplementary Provisions

Chapter 1 General Provisions

Article 1 This Law is enacted for the purpose of protecting and improving the environment, reducing pollutant emissions, and promoting ecological civilization construction.

Article 2 Within the territory of the People's Republic of China and other sea areas under the jurisdiction of the People's Republic of China, enterprises, public institutions, and other production and business operators that directly discharge taxable pollutants to the environment are taxpayers of environmental protection tax and shall pay environmental protection tax in accordance with the provisions of this Law.

Article 3 For the purposes of this Law, taxable pollutants refer to air pollutants, water pollutants, solid waste, and noise as stipulated in the Environmental Protection Tax Tax Items and Tax Amount Table and the Taxable Pollutants and Equivalent Value Table attached to this Law.

Article 4 Under any of the following circumstances, the discharge of pollutants is not considered direct discharge to the environment, and no environmental protection tax shall be paid for the corresponding pollutants:

(1) Enterprises, public institutions, and other production and business operators discharge taxable pollutants into centralized sewage treatment facilities or centralized domestic waste treatment facilities established in accordance with the law;

(2) Enterprises, public institutions, and other business operators store or dispose of solid waste in facilities or sites that meet the national and local environmental protection standards.

Article 5 The premises for concentrated treatment of urban sewage and domestic waste established according to law that discharge taxable pollutants into the environment in excess of the national or local discharge standards shall pay environmental protection tax.

Enterprises, public institutions, and other business operators that store or dispose of solid waste in a manner not compliant with the national and local environmental protection standards shall pay environmental protection tax.

Article 6 The taxable items and tax amounts of environmental protection tax shall be implemented in accordance with the "Schedule of Tax Items and Tax Amounts for Environmental Protection Tax" attached to this Law.

The determination and adjustment of the specific applicable tax amounts for taxable air pollutants and water pollutants shall be proposed by the people's government of the province, autonomous region, or municipality directly under the Central Government, taking into overall consideration the region's environmental carrying capacity, current pollutant discharge situation, and economic and social ecological development goals, within the range of tax amounts specified in the "Schedule of Tax Items and Tax Amounts for Environmental Protection Tax" attached to this Law, and submitted to the Standing Committee of the People's Congress at the same level for decision, and reported to the Standing Committee of the National People's Congress and the State Council for record.

Chapter II: Basis of Tax Calculation and Taxable Amount

Article 7 The tax base for taxable pollutants shall be determined in the following manner:

(1) For taxable air pollutants, it shall be determined based on the number of pollution equivalents converted from the discharge amount of the pollutants;

(2) For taxable water pollutants, it shall be determined based on the number of pollution equivalents converted from the discharge amount of the pollutants;

(3) For taxable solid waste, it shall be determined based on the discharge amount of the solid waste;

(4) For taxable noise, it shall be determined based on the decibels exceeding the national standard.

Article 8 The number of pollution equivalents for taxable air pollutants and water pollutants shall be calculated by dividing the discharge amount of the pollutant by the pollution equivalent value of that pollutant. The specific pollution equivalent values for each taxable air pollutant and water pollutant shall be implemented in accordance with the "Table of Taxable Pollutants and Equivalent Values" attached to this Law.

Article 9 For each discharge outlet or taxable air pollutants without a discharge outlet, the pollutants are sorted in descending order by the number of pollution equivalents, and the of the top three pollutants shall be levied the environmental protection tax.

    For the taxable water pollutants at each discharge outlet, in accordance with the "Table of Taxable Pollutants and Equivalent Values" attached to this Law, they shall be classified into Category I water pollutants and other types of water pollutants, and sorted in descending order by the number of pollution equivalents. For Category I water pollutants, environmental protection tax shall be levied on the first five items; for other types of water pollutants, environmental protection tax shall be levied on the first three items.

    The people's governments of provinces, autonomous regions, and municipalities directly under the Central Government may, based on the special needs for pollutant reduction in their regions, increase the number of taxable pollutant items for environmental protection tax levied at the same discharge outlet, subject to the decision of the Standing Committee of the People's Congress at the corresponding level, and shall report to the Standing Committee of the National People's Congress and the State Council for filing.

    Article 10 The discharge amount of taxable air pollutants, water pollutants, solid wastes, and the decibel level of noise shall be calculated according to the following methods and order:

    (1) If the taxpayer has installed and used automatic monitoring equipment for pollutants that complies with national regulations and monitoring standards, the calculation shall be based on the automatic monitoring data of pollutants;

    (2) If the taxpayer has not installed or used automatic monitoring equipment for pollutants, the calculation shall be based on the monitoring data issued by monitoring institutions that comply with the relevant national regulations and monitoring standards;

    (3) Due to the variety of pollutants discharged or other reasons, if monitoring conditions are not available, the calculation shall be based on the pollutant discharge coefficients and material balance calculation methods prescribed by the administrative department of environmental protection under the State Council.

(4) Where the calculation cannot be carried out in accordance with the methods specified in subparagraphs (1) to (3) of this Article, the assessment shall be determined by the sampling and measurement method prescribed by the competent department of environmental protection of the people's government of the province, autonomous region, or municipality directly under the Central Government.

Article 11 The amount of environmental protection tax payable shall be calculated in accordance with the following methods:

(1) The tax payable on taxable air pollutants shall be the number of pollution equivalents multiplied by the specific applicable tax rate;

(2) The tax payable on taxable water pollutants shall be the number of pollution equivalents multiplied by the specific applicable tax rate;

(3) The tax payable on taxable solid waste shall be the amount of solid waste discharged multiplied by the specific applicable tax rate;

(4) The tax payable on taxable noise shall be the specific applicable tax rate corresponding to the number of decibels exceeding the national standards.

Chapter 3 Tax Reductions and Exemptions

Article 12 The following circumstances shall be temporarily exempted from environmental protection tax:

(1) Agricultural production (excluding large-scale farming) that discharges taxable pollutants;

(2) Discharge of taxable pollutants from mobile pollution sources such as motor vehicles, railway locomotives, non-road mobile machinery, ships, and aircraft;

(3) Centralized treatment facilities for urban and rural sewage and centralized treatment facilities for household waste, established in accordance with the law, that discharge corresponding taxable pollutants within the discharge standards set by the state and local authorities;

(4) Solid waste comprehensively utilized by taxpayers that meets the environmental protection standards of the state and local authorities;

(5) Other circumstances approved by the State Council for tax exemption.

The tax exemption provisions of item (5) of the preceding paragraph shall be reported by the State Council to the Standing Committee of the National People's Congress for filing.

Article 13 If the concentration of taxable atmospheric pollutants or water pollutants discharged by a taxpayer is lower than 30% of the pollutant discharge standards prescribed by the state and local governments, the environmental protection tax shall be levied at 75%. If the concentration of taxable atmospheric pollutants or water pollutants discharged by a taxpayer is lower than 50% of the pollutant discharge standards prescribed by the state and local governments, the environmental protection tax shall be levied at 50%.

Chapter IV Collection Management

Article 14 The environmental protection tax shall be collected and managed by tax authorities in accordance with the Law of the People's Republic of China on the Administration of Tax Collection and the relevant provisions of this Law.

The competent departments of environmental protection shall, in accordance with the provisions of this Law and relevant environmental protection laws and regulations, be responsible for the monitoring and management of pollutants.

Local people's governments at or above the county level shall establish a working mechanism for the division of labor and cooperation among tax authorities, competent departments of environmental protection, and other relevant units, strengthen the collection and management of environmental protection taxes, and ensure that taxes are collected in full and in a timely manner.

Article 15 The competent departments of environmental protection and the tax authorities shall establish a tax-related information sharing platform and a working coordination mechanism.

The competent department of environmental protection shall regularly deliver to the tax authorities information related to environmental protection, such as the pollutant discharge permit, pollutant discharge data, environmental violations, and administrative penalties of the pollutant-emitting units.

The tax authorities shall regularly deliver to the competent department of environmental protection the environmental protection tax-related information of taxpayers, such as tax declaration, tax payment into the treasury, tax reduction and exemption, tax arrears, and risk points.

Article 16 The time when the tax liability arises is the day when the taxpayer discharges the taxable pollutants.

Article 17 Taxpayers shall declare and pay the environmental protection tax to the tax authority in the place where the taxable pollutants are discharged.

Article 18 The environmental protection tax is calculated on a monthly basis and declared and paid on a quarterly basis. If it cannot be calculated and paid within a fixed period, it can be declared and paid on a per-occurrence basis.

When declaring and paying the tax, taxpayers shall submit to the tax authority the types and quantities of taxable pollutants discharged, the concentration values of air pollutants and water pollutants, and other tax-related materials that the tax authority requires the taxpayer to submit according to actual needs.

Article 19 Where a taxpayer declares and pays taxes on a quarterly basis, it shall file tax returns and pay taxes with the tax authorities within fifteen days from the end of the quarter. Where a taxpayer declares and pays taxes on a per-occurrence basis, it shall file tax returns and pay taxes with the tax authorities within fifteen days from the date on which the tax liability arises.

A taxpayer shall truthfully file tax returns in accordance with the law and bear responsibility for the authenticity and completeness of the returns.

Article 20 The tax authorities shall compare the taxpayer's tax return data with the relevant data submitted by the competent department of environmental protection.

Where the tax authorities find that the taxpayer's tax return data are abnormal or the taxpayer fails to file tax returns within the prescribed time limit, they may request the competent department of environmental protection to conduct a recheck, and the competent department of environmental protection shall issue a recheck opinion to the tax authorities within fifteen days from the date of receipt of the data from the tax authorities. The tax authorities shall adjust the taxpayer's tax payable in accordance with the rechecked data from the competent department of environmental protection.

Article 21 Where the discharge of pollutants is calculated and determined in accordance with item (4) of Article 10 of this Law, the tax authorities and the competent department of environmental protection shall jointly determine the types and quantities of pollutants discharged and the amount of tax payable.

Article 22 Where a taxpayer engages in marine engineering and discharges taxable atmospheric pollutants, water pollutants, or solid waste into the sea areas under the jurisdiction of the People's Republic of China, the specific measures for filing and paying environmental protection tax shall be prescribed by the tax administrative department of the State Council jointly with the marine administrative department of the State Council.

    Article 23 Where taxpayers, tax authorities, environmental protection authorities and their staff violate the provisions of this Law, legal liability shall be pursued in accordance with the provisions of the Law of the People's Republic of China on the Administration of Tax Collection, the Environmental Protection Law of the People's Republic of China, and other relevant laws and regulations.

    Article 24 People's governments at all levels shall encourage taxpayers to increase investment in environmental protection construction, and provide financial and policy support for taxpayers' investment in automatic pollutant monitoring equipment.

Chapter V Supplementary Provisions

    Article 25 For the purposes of this Law, the following terms mean:

    (1) Pollution equivalent refers to a comprehensive index or unit of measurement used to measure the degree of environmental pollution by different pollutants, based on the degree of harm of pollutants or pollution discharge activities to the environment and the technical economic feasibility of treatment. Different pollutants with the same pollution equivalent in the same medium have basically equivalent pollution levels.

    (2) Discharge coefficient refers to the statistical average of the amount of pollutants that should be discharged to produce a unit of product under normal technical, economic and management conditions.

(3) Material balance calculation refers to a method of estimating the raw materials used, products produced, and waste generated in the production process based on the principle of conservation of mass.

Article 26 Enterprises, public institutions, and other producers and business operators that directly discharge taxable pollutants into the environment shall, in addition to paying environmental protection tax in accordance with this Law, bear liability for the damage caused in accordance with the law.

Article 27 From the date of implementation of this Law, environmental protection tax shall be levied in accordance with this Law, and the sewage discharge fee shall no longer be levied.

Article 28 This Law shall come into force on January 1, 2018.