On May 9, 2016, the Ministry of Finance, the SAT and the Ministry of Water Resources jointly released Cai Shui [2016] No. 55, on provisional measures on the reform of water resources tax (“the Provisional Measures”).

The main purpose of the water resources tax reform is to expand the scope of tax on resources to cover water and replace the former water resources fee.

Under the Provisional Measures, companies and individuals using extraction facilities to extract surface and underground water directly are subject to water resources tax.

The tax will be levied based on the actual volume of water extracted and used, and the standard tax rate at the location of extraction. For surface water, the standard tax rate is no less than 0.4 per cubic meter; for underground water, the standard tax rate is no less than 1.5 per cubic meter.

However, the Provisional Measures provide a tax exemption for:

  • water extracted and used for agricultural activities within an established quota; and
  • water extracted from unconventional sources, including water reused after sewage treatment and recycled water. 

The reform will be launched on July 1, 2016, in Hebei province as the first pilot area. Based on the result of this trial, China will gradually expand the water resources tax reform nationwide and, eventually, legislate on the resources tax, including the water resources tax, to replace the current implementing regulations.

Date of issue: May 9, 2016. Effective date: July 1, 2016