China mulls new tax for environmental protection

Updated: 2011-10-24 21:03


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More funding needed

In the recently unveiled guideline, the State Council said China will include environmental protection in the government's annual budget and gradually increase investment in the sector.

It also noted that China will speed up the establishment of a special funding mechanism to expand the scope of ecological compensation.

Bai said the implementation of the new policies will require huge financial support. Although China's expenditures on environmental protection have been increasing every year, the sector still requires more funding, he said.

Bai said more funds will be needed during the 2011-2015 period to fuel the country's energy-saving drive, adding that a new environmental tax will help ease financial pressure.

"The biggest difference between the environmental tax and environment-related taxes is that the former has a wider tax base. If implemented, it will provide another channel to raise funds for environmental protection and help foster a long-term and steady fund-raising mechanism," Bai said.

Not just another tax

Resource-hungry industries such as steel, oil and cement will be hit hardest by the environmental tax once it is in place. Some companies are already paying resource taxes; the addition of a new tax item will squeeze profits and have a subsequent effect on prices.

But Liu Shangxi, another official from the MOF, said most companies will not experience a significant change right away.

"The environmental tax is mostly a replacement of the previous pollution discharge fees, so producers will not feel much of a difference," he said, adding that the tax is likely to expand in the long-run, which may eventually affect these companies.

He reiterated that the creation of an environmental tax is not simply an addition of a new tax item, noting that China will first clear up the relationships between the new item and the existing environment-related taxes.

"We still have to work out the details," he said.

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