Editor's note

The Chinese People’s Political Consultative Conference (CPPCC) a body that submits policy proposals to the Chinese government, has gathered its 2,000 members in Beijing for its annual conference to discuss China’s politics, economy, culture and society. The advisory body also makes its own suggestions and members can also submit their own motions on matters they are particularly concerned about. There is no guarantee any such proposal will be adopted by the government, but all submissions receive a response. One particular suggestion catches the eye. CPPCC member and former head of the Ministry of Finance's Institute of Fiscal Science, Jia Kang, has previously written a draft law on an environmental tax that he hopes will be a major lever to implement the various environment-related policies to be included in China's 13th Five-Year Plan, further details of which will emerge this week. Below, he gives his response to a different version of the draft law, which has been circulating at this month's twin sessions in Beijing.

Jia Kang: In recent years, China has adopted a range of policies designed to improve the environment and cut the consumption of fossil fuels and emission of greenhouse gases, with some success. However, significant issues remain: resource and environmental crises are still apparent, such as the smog problem; and it is clear that traditional administrative interventions alone are inadequate to deal with the issues currently prominent, and would have negative impacts on the market economy and on certain populations, which cannot be ignored. A better and more comprehensive policy is needed, including the application of economic levers, such as taxation.

Green tax reform, such as introducing an environmental protection tax and “greening the tax system”, is essential if we are to accelerate the change in our mode of economic growth and seek sustainable development. It will also reduce pollution and improve livelihoods. China currently has no specific environmental taxes, and current charges made for the release of pollutants are low and too narrowly applied – there is no systematic approach to environmental taxation. This is to some extent why environmental protection has not seen any obvious benefits.

The 5th Plenum of the 19th Party Congress stated that China is to build a modern financial and taxation system, and develop in accordance with its environmental and resource capacities. A system of legislation for environmental taxation would be a key strategy for China’s construction of an ecological civilisation and achieving sustainable, green and low-carbon development. The decisions of the 5th Plenum and the Overall Plan for Ecological Civilisation Reform both called explicitly for “faster reform of taxation of resource and environmental taxes”, including, “faster legislation for an environmental protection tax.”

In June 2015, and after years of debate and preparation, the Legislative Affairs Office of the State Council published a consultation draft of an Environmental Protection Tax Law. The draft lays a solid foundation for defining the tax and ensuring it is applied in a standardised and transparent manner, which will help rally support. But the draft as it stands is overly conservative and retains too much of the approach behind the existing fees charged for pollution, with not enough done to reform those charges into a tax. For various reasons, we do not have an environmental tax reform to implement and improve as part of the 13th Five-Year Plan.

To bring about an environmental protection tax that can more effectively and flexibly contribute to saving energy and reducing emissions and bring the design of an environmental tax into line with other tax reforms and policy tools, the following proposals are made: