Chinese cities such as Beijing and Chongqing have been engulfed by smog in recent weeks, so a recently approved law targeting environmental pollution has come at a good time. Aimed at enterprises and public institutions that directly discharge listed pollutants into the environment, the environmental tax law was adopted by the National People’s Congress Standing Committee in December 2016 and will enter into force on January 1 2018. Lawyers Asialaw spoke to agree that the tax will help to increase enforcement and is a sign that businesses should prepare for further government moves to show it is taking environmental protection more seriously.
“In line with the policy map of the Chinese Communist Party, the aim of the law is to convert the current environmental fee pollutant regime to a tax based regime,” says He Jing, partner at AnJie Law Firm.
“With the pollutant levy, some people think it is unfair because the heaviest polluters are not paying enough,” says He. “It is also ineffective because some polluters never pay, so there’s an enforcement issue. If the fee is converted into a tax, there’s more power for the government to collect money. The tax authority is much more effective than local environmental authorities to collect tax.”
How should businesses prepare?
While businesses with pollution prevention technologies already have a headstart in compliance, those without proper technologies should make the investment soon. “Enterprises will have a year to get used to the law, but in the short term, they will need to update their pollution prevention technologies,” says Li Chen, senior partner at Dentons.
“Article 10 of the law indicates that the emissions will be calculated based on pollutant monitoring equipment that comply with national provisions,” says Li. “The law will help to encourage green initiatives and businesses should better understand which procedures need changing.”.
“In some cities, especially first tier ones like Shanghai for example, polluters are penalised on a daily basis to make businesses make improvements as quickly as possible,” adds Li.
Under the new law, businesses are taxed according to the amount of pollution produced. They include:
“The money collected is linked to a national standard,” says He. “If emissions are lower than half of the threshold, the fee is lessened by half and if emissions are lower than 30%, a 25% discount is given. But there is criticism that because the tax is linked to standards, it would require measurement, which becomes a very technical job.”
“For businesses that have always been paying, it is more advantageous if they have better technology and they may be paying less compared to the pollutant levies,” says He. “Compared to international companies, Chinese local companies will likely pay more since the pollution technology is not as advanced.”
Forward looking measures
The environmental protection tax law sets the stage for more stringent measures in the future. For example, the law indicates that provincial governments can raise the air and water pollution rates by up to 10 times, with the National People’s Congress’ approval.
“The tax revenue will go back towards initiatives to target problems such as smog and water pollution,” says He. “In the future, criminal law reform targeting environmental crimes can be expected,” says He.
Public-interest environmental litigation is also a growing area of legal practice. While it is too early to tell whether this sector of law will give the courts enough power to help advance the country’s environmental protection goals, it does give more teeth to regulations.
“A number of case have been won on the environmental front on public interest grounds recently, including the landmark case in 2016 involving the Jinghua Group Zhenhua Decoration Glass company, which was ordered by the Dezhou intermediate people’s court to pay $3.3 million for its surplus emissions in Shangdong province,” says Li.
“Another public interest litigation case on pollution involved dumping of unprocessed waste in the Tengger desert,” says Li. “The supreme people’s court ruled that the intermediate people’s court in the region must take the case after the lower court refused to hear it.”
China’s environmental protection tax should help to prevent pollution and channel money into targeting the slew of environmental issues the country is facing. To avoid hefty taxes, enterprises need to be prepared to comply.