From Pollution Charge to Environmental Protection Tax: A Comparative Analysis of the Potential and Limitations of China’s New Environmental Policy Initiative

Given the magnitude of China's economy, the newly drafted Environmental Protection Tax Law of the People's Republic of China is among the most ambitious forays into green incentives ever attempted. The law's provisions are evaluated as part of the country's layering orientation, where the gradual ratcheting up of government regulation is considered an effective and durable strategy. By making a transition from "taxes on good activities" to "taxes on bad activities" the new statute expands the polluter pays principle embedded in China's present environmental fee system into a broader suite of corporate and individual decisions. China's existing pollution charge system suffers from inappropriate exemptions and pricing levels. The proposed law does not offer clear solutions to these systemic problems. Pollution sources from agriculture, wastewater treatment and waste disposal, major sources of pollution in China, are exempted from the new environmental tax. Statutory language is vague regarding interagency interface between tax authorities and environmental officials. An effective tax on a full range of polluting activities is a critical next layer in the country's steady efforts to ameliorate its environmental challenges. Notwithstanding the progress it represents, this comparative analysis posits that the new Chinese tax program can still be upgraded.