By Shen Jinzhong

The Environmental Protection Tax Law passed last December starts a process of environmental protection fee reform by incorporating them into tax measures, which will become the main economic incentives for enterprises to cut pollution.

The new environmental protection tax basically duplicates the current pollution discharge fee system, which has already been extensively used across China. The tax targets four kinds of pollutants: air pollutants, water pollutants, solid waste, and noise pollution. These items and the associated tax rates are consistent with the existing system, so the legal implications mainly appear in a series of institutional changes. These include:

1. Legal attribute and form.

Pollutant discharge fees are a kind of administrative charge. But environmental protection taxes will be regulated in the form of legislation by the National People’s Congress. To some extent, the implementation of environmental protection tax laws can be regarded as establishing the current pollutant discharge fee system in a legal aspect, which gives this system stronger, legally binding force.

2. Tax reduction and exemptions.

The Environmental Protection Tax Law stipulates reduction and exemptions of environmental protection taxes, which encourages enterprises for their actions in environmental protection, and strengthens the legal processes for protecting the environment.

3. Administration system of tax collection.

The switch from fees to taxes changes the institution responsible for administering the law from the environmental protection authorities to tax authorities. Additionally, administrative actions should be performed according to the procedures regulated by Tax Collection and Management Law. From the perspective of law enforcement and supervision, the tax authorities have more enforcement powers.

4. The use of tax funds.

Pollution discharge fees should be completely used for environmental pollution prevention, but the use of environmental protection taxes are not specifically stipulated in the Environmental Protection Tax Law.

5. Legal responsibility.

Polluters who do not pay fees in accordance with legal provisions should assume administrative responsibilities. But the Tax Collection and Management Law not only regulates more detailed administrative responsibilities for violations, it also stipulates corresponding criminal responsibilities.

To implement the Environmental Protection Tax Law, tax authorities and environmental protection authorities should increase coordination and cooperation on administrative obligations and procedures. The specialization of environmental protection taxes means the tax authorities will need to show leadership in the implementation and collection of environmental protection taxes, as well as the cooperation and support of the environmental protection authorities, which will be critical to effective implementation.


Therefore, a series of supporting measures are necessary to ensure effective coordination between tax authorities and the environmental protection authorities, such as the reform of monitoring systems for taxable pollutants, promotion of monitoring capabilities, construction of a tax information exchange platform, division of responsibilities on tax collection and administration between tax authorities and environmental protection authorities, and the legal relief approaches for taxpayers, among many others. Compared to imposing discharge fees, the implementation of the environmental protection tax will be much more complicated and difficult.

Shen Jinzhong is an associate professor at Nankai University Law School and a lawyer at Winners Law Firm. From 2013 to 2017, Mr. Shen was continuously rated as a first-grade environmental business lawyer by Chambers and Partners. This article was prepared with help from LexisNexis, a leading global professional legal information service provider, more information is available at