Owing to its economic development in recent decades, China has major environmental pollution problems to solve. In July 2015, the State Council released a draft Environmental Protection Tax (“EPT”) Law for public comments. A year and a half later, on December 25, 2016, the Standing Committee of the National People’s Congress finally passed the law through Decree [2016] No. 61, which will take effect on January 1, 2018. 

The highlights:

1. Taxpayers

EPT taxpayers are those who discharge taxable pollutants directly into the environment in the People’s Republic of China (“China,” excluding Taiwan and the special administrative regions of Hong Kong and Macau) and the territorial waters under its jurisdiction.

“Taxable pollutants” include air pollutants, water pollutants, solid waste and noise, as detailed in a comprehensive list attached to the EPT Law, while “discharge directly into the environment” excludes the following two situations:

- discharge into facilities established under law to centralize the treatment for sewage and domestic waste; and

- storage or disposal of solid waste in facilities that meet national and local environmental protection standards. 

2. Tax calculation

The tax base for the different pollutants is determined as follows:  

- For taxable air pollutants and water pollutants, by a pollution equivalent quantity.

The “pollution equivalent quantity” is a comprehensive indicator measuring environmental pollution based on the degree of harmfulness of the pollutants and the discharge activities affecting the environment, as well as the technical complexity and cost of the treatments, and is calculated based on the pollutants’ emission quantity divided by a pre-determined pollution equivalent coefficient:

- For taxable solid wastes, by the solid waste emission quantity.

- For taxable noise, by the decibels exceeding national standard. 

The tax amount is calculated by multiplying the tax base by applicable tax rates.  

The list attached to the EPT Law gives the pollution equivalent coefficients and applicable tax rate. 

3. Special policies 

The EPT Law provides the following special policies: 

- EPT exemption for (i) taxable pollutant emissions caused by agricultural production (excluding large-scale farming); (ii) taxable pollutant emissions by motor vehicles, off-road moving machinery, railway locomotives, vessels, aircrafts and other mobile sources; (iii) taxable pollutant emissions by facilities established under law to centralize the treatment for sewage and domestic waste not exceeding national and local emission standards; (iv) comprehensive use of solid waste according to national and local environmental protection standards; and (v) other situations approved by the State Council.

- 25% reduction if the density of the discharged air pollutants or water pollutants is lower than 30% of national and local pollutant emission standards.

- 50% reduction if the density of the discharged air pollutants or water pollutants is lower than 50% of national and local pollutant emission standards.

4. Tax collection

The local tax authorities are responsible for collecting EPT, and the local environmental protection authorities are responsible for monitoring and managing pollutant emissions.

Under the EPT Law, both local authorities are called to establish a tax-related information-sharing platform and work-coordination system, and to exchange routine information. 

EPT will be calculated monthly and declared quarterly within 15 days following the end of each calendar quarter. 

Date of issue: December 25, 2016. Effective date: January 1, 2018