Overview

Just like the title of this article implies, technically, up until now, China doesn’t have ecotax. The absence of ecotax directly results from China’s old planed economy system and is also largely affected by the China’s current economic and political situation. However, to levy such tax is an indispensible part of China’s free market reform and is an essential step to keep China’s deteriorated environment from worsening further.

The government of China has been doing research on ecotax for a long time. According to the premier Wen’s Government Work Report of 2011, China is going to offically levy ecotax during its 12^th Five-Year Plan (2011-2015).

The Story

Origin

The government of China started planing to levy ecotax since 2005. This work has been in research stage for a very long time until 2011, after premier Wen announced in his Government Work Report that China was going to have ecotax in the next five years, which was a symbol that China’s ecotax plan had come into the legislative stage.

As you may already know, China is a country where govenment power is highly concentrated in one party and all the other parties and organizations have to cooperate with the government. So it is not difficult to understand that the government of China is the absolute major designer and implementor in this entire process of levying ecotax. As an essential part of the free market reform and an necessary step to protect the not optimistic environment in China, the government has to learn from the developed countries in the western world and make its own ecotax policy.

What It Was in the Past

It is not true that China never asked polluters to pay for their pollution before 2011. Actually, instead of tax, China has been using the method of charging fine for almost 30 years. As you can see, it is more like a administrative mean than economic mean. In addition, this method only charges the discharges that exceed national or local standards, which makes the base of fine very small. Besides, the charege rate is very low—much lowering than abataement cost. And a large portion of the revenue collected is given back to the polluter companies to help them install abatement equipment. Off cource, these measures do not have a strong effect on polluter. The environment in China continues going worse.

But like other developing countries, China seems to have no other options, beause worry always exists on politicians’ mind that a stricter and larger charge on pollutes would have a good change to make domestic companies less competitive and impedes the development of domestic industries. Hence, to some degree, it is a tradeoff between the evironment and economy. And the government of China chose the latter one.

What Is Going To Happen

Well, to be honest, everything is still uncertain now. The detailed policy has not published yet. However, a thing that we have already known is that the news of this upcoming ecotax has been causing many concerns and arguments. There are four aspects that have been paid most attention to.

1) Tax Base

How will the pollute be measured? Will the tax be put on input level, output level or directly on the pollutes? Who will be the designer of this base, State Administration of Taxation or Ministry of Environmental Protection?

2) Tax Rate

The best tax rate should be equal to the marginal damage per unit of pollute made to the environment. However, since China’s domestic industries are still not fully developed and the levels of development across China is highly imbalanced geographically, a high tax rate probabily would have a suppressing effect on development of many industries and companies, while a low tax rate is likely to be ignored by the polluters.

3) Tax Range

Take car industry as an example. Will the tax be imposed on producers or consumers? Will official vehicles and private vehicles have the same tax standard? Will the standard be based on quantity or mileage?

4) Revenue Allocation

Will the revenue be accumulated as earmarked fund for environment protection or be counted into general budget? Will the finance department be in charge of all of the revenue collected or the revenue will be shared with other departments?

Conculsion

Although the ecotax has not been imposed yet, it is well known that the government of China has been doing its research on ecotax for a long time and is determined to levy such a tax within five years. Tax base, tax rate, tax range and revenue allocation are four things that have been mostly concerned.

Reference:

1. China is going to levy ecotax in its 12^th Five-Year Plan. Here
2. The Ture Cost of Coal in China. Here
3. Environmental Taxes in OECD Here