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Environment Tax in China's Next 5-Year Plan?

The prospects for a comprehensive environmental tax in China have been discussed and debated for years, and we've heard that it was coming before. Observers are used to optimistic signals that don't necessarily pan out, but this year could be different. The latest came in the form of an interview with Su Ming, associate director of the Chinese Ministry of Finance's Research Institute for Fiscal Science. With China's next five-year plan on the horizon in 2011, Su said an environmental tax taking effect in 2013 might be in the offing. Below, Graham Webster translates the full interview from the environmental section of the state-run People's Daily's website.

August 9, 2010, 9:25 a.m., Renmin Wang, People’s Daily Overseas Edition—According to media reports, the issue of an environmental tax in China has reached the stage where the Ministries of Finance and Environmental Protection and the Tax Bureau are asking the State Council for instructions on implementing the tax, possibly reaching the public in 2013.

The so-called enviornment tax is an integrated policy designed to include the social costs of pollution and ecosystem destruction in the manufacture and purchase prices of goods, giving natural resources economic value through market mechanisms. What difficulties come along with proposing an environment tax? What trades and industries might such a tax affect? And why do local governments especially support an environmental tax? Su Ming, associate director of the Research Institute for Fiscal Science of the Chinese Ministry of Finance answers questions.

Environmental taxation relatively behind, overall

Q: There are a lot of rumors recently about the introduction of an environmental tax. We’ve heard several government bodies have reached an agreement. What’s the probability of the tax being introduced in 2013?

Su Ming: I think the environment tax is very important. First, in the development of the taxation system, the environmental taxation regime is so far lacking. Such a regime is important to the development of a comprehensive taxation system. Second, implementing an environmental tax will assist in ecosystem and environmental improvements and natural resource preservation goals. The central government is also very interested in an environmental tax, and has repeatedly proposed its study. I personally think it’s relatively likely the environmental tax will be included in the 12th Five Year Plan.

Q: We know an environmental tax is a system of taxes rather than an individual tax, so it’s possible levying such a tax could result in repeat taxation. For example, a carbon tax has also drawn interest. If an environmental tax were implemented, would there still be a carbon tax?

Su Ming: The environmental tax system would include the carbon tax, so the scope of “environmental tax” is larger than “carbon tax.” However, the individual taxes of the environmental tax would be introduced one step at a time rather than all at once, beginning with the most crutial. It’s important to understand with the carbon and environment tax issues that they come together.

No Resistance From Local Govermnents

Q: The idea of an environment tax was proposed many years ago, but it hasn’t yet been implimented. Where does the difficulty lie?

Su Ming: It’s easy to talk about implementing a tax, but actually doing it is difficult. Because the implementation of a tax and its collection policies involves many interests including the government, private enterprise, consumers, and individuals, the design process is multi-faceted. These interests and their relationships present the hardest challenge. Moreover, an environmental tax involves the development of some industries to the extent that it involves economic development levels, employment, macroeconomic and microeconomic conditions, and business and individual actors all affected to different degrees. Therefore, taxation policy objectively faces certain challenges.

Q: You just mentioned interest group input. In April, the Jiangxi Province government applied to have the environmental tax launch in their province. They must already have the conditions ready for an environmental tax and want to be the first experiment. How big an influence does the environmental tax have on local income?

Su Ming: The primary goal of implementing an environmental tax is not to increase government revenues. It is aimed at improving ecosystems and the environment and conserving resources. These are the original intentions of the national environment tax plan. I think increasing revenues is a secondary concern. The second way of looking at it, whether it’s an environmental tax or a carbon tax, such taxes can improve financial regulation and increase revenues. From the perspective of local governments, then, there is no reason to resit the policy. That’s my understanding.

Large Impact on High-Pollution Business

Q: If an environment tax is introduced, what industries and business will see the largest impact?

Su Ming: Simply put, the environmental tax would most effect high-emission, high-energy-consumption, or relatively large industries, for example steel, chemicals, oil, cement. But the impact is big and it isn’t. The core question is how to set up the tax rate. High and low rates have different influences, so from a feasibility perspective, I take a scholarly perspective and examine how best to start out the tax rate low, and then perfect and adjust the policy one step at a time, whether it’s an environment tax or a carbon tax.

Moreover, there are many kinds of environmental taxes. For example, in the past we haven’t called it a tax, but that doesn’t mean there was no fee leveled on any pollutant emissions. In the past we have fees to collect, so to some degree the regulation of pollutants is already in the process of changing from a fee system to a tax system. Thus in setting tax rates, we look at past fee levels. Fees and taxes thus have a certain relationship.

Graham Webster is a doctoral student in political science at University of Washington, holds a master's in East Asian studies from Harvard, and has worked as a consultant to the Natural Resources Defense Council in Beijing.

Image via Flickr user Bert van Dijk

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