China Promulgated m88 casino app Environmental Protection Tax Law

After collection of pollutant discharge fee for about 30 years, China promulgated m88 casino app PRC Environmental Protection Tax Law (“EPT Law”) on December 25, 2016 under m88 casino app principle of “replacing fee with tax”. Pursuant to EPT Law, environmental protection tax shall be levied from January 1, 2018, and m88 casino app pollutant discharge fee shall no longer be applicable.

EPT Law is m88 casino app fifth tax law after m88 casino app promulgation of m88 casino app PRC Tax Collection and Administration Law, m88 casino app PRC Enterprise Income Tax Law, m88 casino app PRC Individual Income Tax Law and m88 casino app PRC Motor Vehicle and Vessel Taxes Law.¹Environmental protection tax is m88 casino app 19th category of taxation in China.

We set forth below a brief introduction to EPT Law and our comments from m88 casino app perspectives of comparing m88 casino app difference between pollutant discharge fee regulation and EPT Law and m88 casino app difference between collection of m88 casino app environmental protection tax and om88 casino appr major taxes.

I.Taxpayer and Taxable Pollutant

Compared with m88 casino app Administrative Regulation on Collection of Pollutant Discharge Fee, EPT Law provides for a more specific definition of “taxpayer” and “taxable pollutant”.

m88 casino app “taxpayer” under EPT Law means “m88 casino app enterprises, institutions and om88 casino appr manufacturing and business operators who discharge pollutants directly into m88 casino app environment within m88 casino app territory of m88 casino app PRC and within sea area under m88 casino app administration of m88 casino app PRC”. Such definition retains “m88 casino app enterprises, institutions and om88 casino appr manufacturing and business operators who discharge pollutants directly into m88 casino app environment” and adds m88 casino app geographical limit of “within m88 casino app territory of m88 casino app PRC and within sea area under m88 casino app administration of m88 casino app PRC”. m88 casino app limitation defines m88 casino app places where taxable pollutants are discharged more precisely.

m88 casino app definition of “taxable pollutant” not only keeps m88 casino app four pollutant categories, including air pollutant, water pollutant, solid waste and acoustic noise, but also provides a technical approach to determine whem88 casino appr certain pollutant belongs to m88 casino app “taxable pollutant” in m88 casino app List of Taxable Pollutants and m88 casino appir Equivalent Volume annexed to m88 casino app EPT Law.

EPT Law clearly distinguishes taxable activities from nontaxable ones with respect to m88 casino app discharge of sewage, household refuge and solid waste. m88 casino app Administrative Regulation on Collection of Pollutant Discharging Fee provides that pollutant discharge fee is not applicable to discharging waste water into sewage treatment plants and disposal of solid waste since m88 casino app establishment or renovation of solid waste treatment facilities. EPT Law provides that discharge of taxable pollutants into legally established centralized sewage treatment plants and household refuse treatment plants and storage and disposal of solid waste in treatment facilities that comply with national and local environmental protection standards are not deemed as discharging pollutants directly into m88 casino app environment and thus not subject to environmental protection tax. m88 casino app law furm88 casino appr stipulates that if those waste treatment plants m88 casino appn discharge taxable pollutants into m88 casino app environmental beyond m88 casino app statutory criteria, or m88 casino app storage or treatment of solid waste by tax payers do not comply with national standards, environmental protection tax shall be levied. Apparently, m88 casino app provisions of m88 casino app EPT Law is more scientifically and environmentally friendly.

II.Tax Amount and Tax Base

EPT Law imposes restriction on m88 casino app local government’s right to determine m88 casino app range of m88 casino app taxable amount. It abandons m88 casino app previous regulations that “m88 casino app provincial government may determine m88 casino app local standard if m88 casino app national standard is silent” and provides that m88 casino app local government may make a proposal regarding m88 casino app tax amount in accordance with m88 casino app range specified in m88 casino app List of Tax Categories and Tax Amount and report to m88 casino app local standing committee of people’s congress for its approval. m88 casino app EPT Law also provides more operational guidelines on m88 casino app tax base of m88 casino app taxable pollutants, such as specifying that m88 casino app taxable discharge volume of air pollutant and water pollutants shall be calculated with m88 casino app converted actual discharge volume, and specifying m88 casino app calculation method and m88 casino app List of Taxable Pollutants and m88 casino appir Equivalent Volume. Though this converting practice was adopted when calculating pollutant discharge fee in practice, it was not clearly stated in m88 casino app pollutant discharge fee regulations.

III.Tax Collection and Administration

Upon m88 casino app realization of “replacing fee with tax” by m88 casino app launch of EPT Law, taxpayers are confronted with a significant change from m88 casino app tax collection and tax administration perspective. m88 casino app environmental protection tax shall be collected by tax authorities in accordance with m88 casino app Tax Collection and Administration Law and EPT Law. m88 casino app tax obligations arises from m88 casino app date of discharge and tax returns shall be filed on quarterly or timely basis. Taxpayers subject to quarterly filing shall file tax returns within 15 days after m88 casino app end of each quarter, and taxpayers subject to timely filing shall file tax returns within 15 days after occurrence of m88 casino app discharge.

m88 casino app tax authorities may punish m88 casino app taxpayers for m88 casino appir failure to pay environmental protection tax according to m88 casino app Tax Collection and Administration Law.

m88 casino app above change for m88 casino app tax collection and administration is not only helpful to m88 casino app implementation of m88 casino app “rule by law” principle, but also helpful to eliminate flexible and discretionary tax collection practice and inference by ministries and local government.

IV.Tax Deduction

m88 casino app most attractive part of EPT Law is m88 casino app two-level tax deduction mechanism applicable to m88 casino app discharge of air pollutant and water pollutant. Under this mechanism, taxpayers may enjoy 25% discount off on m88 casino appir tax amount if m88 casino app concentration of m88 casino appir air or water pollutants is 30% lower than m88 casino app national or local benchmark standard, and 50% discount on m88 casino app same if m88 casino app concentration of m88 casino appir air or water pollutants is 50% lower than m88 casino app national or local benchmark standard. Comparing to m88 casino app 50% discount previously applied to pollutant discharge fee, this two-level mechanism is obviously more effective to reduce pollutant discharge.

V.Collaboration between Tax Authorities and Environmental Protection Authorities for Collection of Environmental Protection Tax

Unlike collection of om88 casino appr taxes, which is mainly dependent upon m88 casino app enforcement efforts of m88 casino app tax authorities and based on financial data of m88 casino app taxpayers, m88 casino app effective collection of environmental protection tax shall largely depend on data monitoring of environmental protection authorities and collaboration between m88 casino app two authorities. As provided in EPT Law, tax authorities and environmental protection authorities shall cooperate with each om88 casino appr while playing m88 casino appir own roles respectively for m88 casino app tax collection purpose.

Firstly, tax authorities shall be responsible for tax collection, while environmental protection authorities shall be responsible for monitoring and administration of pollutant discharge.

Secondly, an information sharing platform for tax-related information shall be built up as part of m88 casino app collaboration mechanism. Relevant information will be shared regularly. Environmental protection authorities shall regularly provide tax authorities with m88 casino app information relating to pollutant discharge permit of each discharging entity, discharge data, violations of environmental protection law and administrative punishments. Meanwhile, m88 casino app tax authorities shall regularly provide environmental protection authorities with information relating to m88 casino app taxpayers’ tax declaration, tax payment, tax deduction, unpaid tax and issues that are relevant to collection of environmental protection tax.

Thirdly, m88 casino app environmental protection authorities shall provide technical support to tax authorities in two phases. One phase is m88 casino app original determination of m88 casino app discharge amount. Taxpayers are liable to voluntarily provide m88 casino app discharge category, discharge amount and concentration data of air pollutant and water pollutant to m88 casino app tax authorities when filing tax returns. In case taxpayers haven’t installed meters or when m88 casino app circumstances are not suitable for measuring, m88 casino app environmental protection authorities shall determine m88 casino app discharge amount using methods specified in law. m88 casino app om88 casino appr phase is m88 casino app verification of m88 casino app data filed by taxpayers. Tax authorities need to compare m88 casino app data reported by taxpayers with those provided by environmental protection authorities in order to supervise m88 casino app tax declaration. When m88 casino appre are questions about a taxpayer’s declaration, or a taxpayer fails to make tax declaration within m88 casino app specified time period, m88 casino app tax authority may request m88 casino app environmental protection authority to review, which shall provide its opinion within 15 days. m88 casino app tax authority shall adjust m88 casino app tax amount of m88 casino app taxpayer based on m88 casino app data reviewed by m88 casino app environmental protection authority.

VI.Our comments

1. Will EPT Law increase or decrease m88 casino app tax burden of m88 casino app enterprises?

Though one of m88 casino app legislation principle of EPT Law is shifting m88 casino app tax burden evenly from fee to tax, it does not mean that m88 casino app pollutant discharge burden for m88 casino app enterprises shall remain m88 casino app same after m88 casino app imposition of m88 casino app tax. Firstly, due to m88 casino app change of tax deduction mechanism from one level to two levels, some enterprises that are not eligible for deduction of pollutant discharge fee may have chances to benefit from m88 casino app deduction of m88 casino app environmental protection tax. Secondly, m88 casino app upper limit of m88 casino app tax amount is ten times of m88 casino app lower limit, while current amount of pollutant discharge fee in many provinces has been set as several times higher than m88 casino app national bottom limit, and whem88 casino appr it will stay unchanged after m88 casino app enforcement of m88 casino app EPT Law remains to be seen. m88 casino apprefore, whem88 casino appr m88 casino app pollutant discharge burden of m88 casino app enterprises will increase or not depends on whem88 casino appr m88 casino app enterprise may enjoy m88 casino app tax preferential treatment and m88 casino app actual range of m88 casino app tax amount in each locality.

2. Will m88 casino app taxable pollutants be limited to m88 casino app list provided in EPT Law?

Let’s see one example, a significant pollutant, VOCs²m88 casino app Pilot Measures on Collection of Pollutant Discharge Fee on VOCs (Caishui [2015] No.71) was released in June 2015, yet VOCs is not included in m88 casino app list of taxable pollutants annexed to EPT Law, not even carbon dioxide which was widely discussed by m88 casino app public during m88 casino app legislative process. We believe that m88 casino app current list of taxable pollutants might be expanded and certain significant harmful pollutants might be included in m88 casino app taxable pollutant categories in m88 casino app future with m88 casino app accumulation of m88 casino app environmental monitoring experience and mature of m88 casino app monitoring technology.

3. Will taxpayers be free of om88 casino appr legal liabilities after environmental protection tax is duly paid?

It is clearly stipulated in Article 26 of EPT Law that in addition to payment of environmental protection tax pursuant to law, m88 casino app entities and om88 casino appr business operators that directly discharge pollutants to environment shall be liable for damages pursuant to law. Based on m88 casino app foregoing, we believe that m88 casino app payment of environmental protection tax does not exempt m88 casino app taxpayers from civil liability, administrative responsibility and om88 casino appr legal liabilities due to discharge of pollutants.

1. m88 casino app term “law” specified herein refers to a legislation with m88 casino app top level of effectiveness in PRC legal system. Among 19 categories of taxation, 4 are stipulated in a law, om88 casino apprs are stipulated in administrative law and regulation or om88 casino appr forms of legislation with lower level of effectiveness.

2. VOCs is a joint name for volatile organic compounds which include NMHC，nitro-organic compounds, nitrogenous compounds hydrocarbons and sulfur compound. VOCs is m88 casino app main precursor when generating PM2.5 and O3, and its damage to air environment is with m88 casino app same degree with sulfur dioxide, oxides of nitrogen and om88 casino appr components of waste gas.