Is China Ready for Environmental Tax?

On February 9, Zhang Lijun, Vice Minister of Environmental Protection, said that his ministry, along with the Ministry of Finance and the General Administration of Taxation, were working on the feasibility of an environmental tax.

At the end of January, Zhang Yanyou,Deputy Director of the Beijing Municipal Development and Reform Commission,told a session of the local legislature that the Central Government had already commenced research on levying environmental tax on automobiles. He said owners would have to pay tax in line with the emissions of their cars—the more a car emits, the more the car owner has to pay. Zhang said it was likely the tax would be applied in Beijing first.

Compared to traditional “order-obey”management, supporters say that a specific environmental tax will encourage technology innovation and prevent high-polluting activities. For instance, the tax might force polluting industries to develop alternative,non-polluting systems. This would in turn reduce enterprises’ tax payment and protect the environment at large. In addition, it will provide a new tax source for the government,and so provide funding for it to sponsor pollution control programs, which entails possible bene fi ts in reduction spin-offs.

As for the planned auto emission tax, it is expected to increase the cost of car uses.Consumers might then have to use subways or buses or adjust their behavior to offset rising costs. In the meantime, makers of highemission cars would voluntarily develop fuel-ef fi cient technology to enable their cars to be sold. Or they would be driven from the market by regulation or falling sales.

But some critics say if the introduction of environmental tax is part of a tax reform, the government must produce a detailed plan,and overhaul existing environment-related taxes first. But it would be neither easy nor realistic to complete this massive work in a short period of time. An environmental tax out of the blue would become just another means for government to increase state revenue.

Right timing

Xu Guangmu (National Business Daily): With the introduction of environmental tax, the social costs arising from environmental pollution and ecological damage are transferred into production costs,which would then lead to environmental resource redistribution through the market mechanism. The implementation of the tax is meant to reduce pollution. It would force businesses to re-evaluate resource distribution ef fi ciency.

Cars, as the major contributor to environmental pollution, must be held responsible for the pollution they cause. They bring convenience to our work and life, but they also give rise to enormous environmental degradation. Auto emissions have already become the biggest source of air pollutants.Worse still, with ever-increasing car sales,the environment is faced with bigger challenges. In light of such conditions, levying an environmental tax on cars becomes an important measure to control auto emissions.

Official figures show by the end of last year, the total number of cars on the roads had exceeded 186 million in China, and it is expected to rise substantially this year. This piece of news provides two useful bits of information. On the one hand, the prevalence of cars is sure to stimulate domestic demand, and drive economic growth to a large extent. On the other hand, the environment will be confronted with bigger problems. If no effective measures are taken, the string of negative in fl uences brought about by auto emissions will make us suffer.Therefore, it is the right time to levy environmental tax on automobiles.

Tian Fang (China Business Herald):Statistics show more than 13.5 million cars were sold in China in 2009, making the country the biggest car market in the world.Automobiles have become a daily necessity for an increasing number of Chinese people,meaning it will take a long time before pressures on the environment lessen. At present,environmental pollution is increasing rapidly. Therefore, it is wise and necessary for the government to impose environmental tax on those who pollute the air—the more they emit, the more tax they must pay. In taking legal actions to protect and improve the environment, a tax is the most effective measure of creating a resource-conservation,environment-friendly society.

Members of the Organization for Economic Cooperation and Development have created nearly 400 environmental taxes.As a member, China lags far behind its peers,as it does not have a speci fi c environmental tax, let alone imposing it. In the early years,it was not a problem because there were no international constraints. But things are different now. Environmental problems have become a global issue with growing calls for environmental protection. The international community has adopted a large number of environment-related treaties enjoying the full force of law. Anyone who breaks the treaties will be punished. As a responsible country,China has a compelling obligation to protect the environment according to internationally accepted practices. If we fail to do so, the consequences will be disastrous.

Experience tells us the traditional environmental pollution control and environmental protection measures are not enough to resolve pollution problems. Therefore,we need the combined weight of macroeconomic, industrial and fiscal policies to contain environmental degradation.

Not realistic

Liu Changhai (Chinese Business Morning View): Results of the first national census of pollution sources jointly conducted by the Ministry of Environmental Protection,the National Bureau of Statistics and the Ministry of Agriculture show nitrogen oxides emitted by cars account for 30 percent of all such emissions, exerting a negative impact on the urban atmosphere. In agriculture, a great deal of pollution comes from animal husbandry. The chemical oxygen demand and total nitrogen and phosphorus emissions in husbandry comprise 96 percent,38 percent and 56 percent respectively of agriculture’s total.

Therefore, we can see that once an environmental tax is levied, car owners and farmers will bear the full brunt. Since the pollution they cause is the chief culprit in environmental degradation, the imposition of tax on them seems understandable. But the environment is an integrated system, and its problems cannot be resolved through tax collection.

For instance, the amount of car emissions is closely tied to various other factors. The performance of engines and quality of fuel exert imperative influences on emissions,and that is clearly not the responsibility of car owners. Farmers are relatively less affl uent and lack technology and capital. The environmental tax will only raise their production costs, which will be passed on in the prices of meat, eggs and milk. As a result, it would place a greater burden on consumers.

Development cannot be achieved at the cost of the environment or vice versa.It is our responsibility to cope with climate change, but a healthy environment does not come at the expense of increasing poverty and economic degradation.

When considering the adoption of a new tax, the government must think twice.

Wu Jie (Xin’an Evening News): It is understandable if the government imposes an environmental tax on businesses and individuals responsible for environmental pollution. But if a new tax created under the pretext of environmental protection only increased financial burdens on polluters, it will do less help to the environment in the long run. To resolve all doubts about the tax,the government should provide information about its use. That is to say, revenues from the environmental tax must be used for pollution control and environmental protection.Otherwise, the tax is not warranted.

It is too optimistic to think pollution can be wiped out through taxation. In reality, many polluting enterprises, as long as they pay for pollutant disposal, continue to pour huge amounts of sewage into rivers and lakes.

Before abruptly imposing a new tax, the government should work out a precise report on feasibility to see if the tax would really help reduce pollution. Or it could only turn into a new charge enabling the disposal of pollutants.

Bi Shicheng (www.hsw.cn): In the light of the experiences of developed countries,taxing auto emissions or other pollutants indeed restrains the growth of car ownership and reduces air pollution to a certain extent.That is why the consideration of an environmental tax has emerged against a backdrop of China becoming the biggest auto market in the world. But judging by the current situation, the implementation of an environmental tax must first face much debate about its rationality.

First of all, does it mean double taxation? Currently, vehicle purchase, fuel and consumption taxes have all already covered pollution. If the government believes those taxes are not cutting pollution back, and it is still on the rise, is it really necessary to create something like an auto emission tax?On second thoughts, will the proposed auto emission tax rescue us from environmental pollution? At present, some government departments rely heavily on the creation of new taxes to change some old patterns or habits,but the results are not at all convincing.

Of course those who do not drive a car might welcome a new environmental tax because the fewer people driving, the better the traf fi c situation and air quality will be. But is this the right logic? A major responsibility of the government is to make people’s life better. Will the tax do no more than imposing another tax burden on the people? I doubt it.

Fu Weigang (Oriental Morning Post):Environmental tax has been levied in many developed countries. But is China ready for such dramatic change? Not really.

The tax burden on China’s businesses and individuals is already heavy. Worse still,the people always have no idea how local governments spend tax revenues. How can they believe the revenues brought about by collecting an environmental tax will be put to best use? ■

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