Ge Chazhong, Director and Researcher of the Environmental Policy Department at the Environmental Planning Institute of the Ministry of Environmental Protection. Engaged in long-term research on environmental policies, environmental economic instruments, environmental management, and other aspects, undertaking multiple research tasks and achieving rich research results. The research results on the design and implementation strategy of China's environmental tax policies, which are under the organization's responsibility, provide reference for the formulation of relevant environmental and economic policies in China.

Dialogue person: Ge Chazhong, Director of the Environmental Policy Department of the Environmental Planning Institute of the Ministry of Environmental Protection

Interviewer: Our reporter Huang Tingting

The Environmental Protection Tax Law will be implemented on January 1, 2018. What does the fee to tax reform mean for localities, especially at the grassroots level? Will it reduce the enthusiasm of environmental protection personnel and weaken the environmental protection department? What preparations should be made in various regions at present?

The fee to tax reform can free up some administrative resources and allocate them to other key tasks such as environmental law enforcement. It will not weaken the environmental protection department, but attention should be paid to the issue of funding guarantee in underdeveloped areas. The introduction of environmental protection tax is imminent, and all regions should enhance their sense of urgency, clarify the responsibilities of each department, do a good job in information communication, provide personnel training, and strengthen service guidance. Especially in completing the construction, deployment, and debugging of the tax related information sharing platform.

What does the introduction of environmental protection tax mean for local governments?

Freeing up some administrative resources will not weaken the environmental protection department

China Environment News: From a macro perspective, levying environmental protection taxes can promote the transformation and upgrading of enterprises and the transformation of economic development models. What does the change of environmental protection fees to taxes mean for localities, especially at the grassroots level? What are the benefits of promoting local environmental protection?

Ge Chazhong: The Third and Fourth Plenary Sessions of the 18th Central Committee of the Communist Party of China clearly proposed to promote the transformation of environmental protection fees into taxes and to protect the ecological environment through strict legal systems. The implementation of environmental protection fee to tax reform is an important measure to implement the decision-making and deployment of the State Council. Pollutant discharge fees are one of the earliest environmental and economic measures implemented in China. By charging fees, enterprises are encouraged to strengthen environmental governance, reduce pollution emissions, and play an important role in the development of environmental protection. However, in the actual implementation process, there are also some problems, such as insufficient enforcement rigidity and intervention from local governments and departments. The implementation of environmental protection fee to tax reform can fully utilize the regulatory function of policies through the rigidity of taxation, promote the construction of environmental protection system and the transformation and upgrading of enterprises.

From the perspective of resource allocation, for localities, especially at the grassroots level, the reform of fees to taxes can free up some administrative resources and allocate them to other key tasks such as environmental law enforcement. The functional department responsible for pollutant discharge fees is the environmental protection department, which is generally managed by local environmental supervision agencies and may be staffed with full-time or part-time personnel. After the fee to tax reform, the collection department of environmental protection tax is the tax department, so that the resources originally used by the environmental protection department for charging can be freed up and allocated to other work.

China Environment News: Environmental protection tax is a local tax, which means that all taxes belong to the local government. Does this mean an increase in the amount of money spent on environmental protection in various regions compared to sewage charges? What is the significance of the added part?

Ge Chazhong: Environmental protection tax is indeed a local tax, and the income belongs to the local government. However, the amount of environmental protection tax collected is not directly related to the local government's expenditure on environmental protection.

The current collection of pollution discharge fees is a special fund, which is fully included in the environmental protection special fund. Once changed to taxation, tax revenue will be collected and paid in a unified manner. That is to say, like other types of taxes, environmental protection tax revenue should be included in the unified budget, and environmental protection expenditures will be arranged by the finance department. Therefore, the introduction of environmental taxes does not necessarily mean that local governments will increase their budget expenditures for environmental protection.

China Environment News: There is now a saying that pollution discharge fees have supported many environmentalists, and there is concern that after the fee is changed to a tax, it will affect the funding of environmental protection departments and reduce the enthusiasm of environmental protection personnel. There is also a view that pollution charges are a power of the environmental protection department, and after the fee to tax reform, the collection function will be transferred to the tax department, which will weaken the environmental protection department and thus reduce regulatory rigidity. What do you think of these two viewpoints?

Ge Chazhong: Pollutant discharge fees, as an important environmental and economic tool in China, have indeed played a role in stimulating enterprises to actively control pollution and raise environmental protection funds, becoming one of the powerful enforcement measures of environmental protection departments. But with the increasing attention of the Party and the state to environmental protection, and the deepening of environmental protection work, the enforcement methods of environmental protection departments have become more diverse, and the focus will no longer be limited to pollution discharge fees. Therefore, in the long run, the fee to tax reform will not weaken the environmental protection department, nor will it weaken environmental supervision.

From the current perspective, it is important to pay attention to the issue of ensuring work funding in some areas, especially in underdeveloped regions. According to the survey, about half of the working expenses in underdeveloped areas come from sewage charges. After implementing vertical management of monitoring, supervision, and law enforcement by environmental protection agencies below the provincial level, the municipal environmental protection bureau will bear the work expenses of county-level law enforcement personnel, which will solve some of the funding problems. However, in addition to staffing, there are also cases of overstaffing in grassroots environmental protection departments. Many of the staff are employed by public institutions or temporary staff, and how to solve the funding problem for these personnel needs to be planned in advance.

What preparations should be made for the implementation of environmental protection tax?

Clarify the responsibilities of each department, coordinate information, provide personnel training, and strengthen service guidance

China Environment News: Experts have pointed out that the biggest challenge in implementing environmental protection tax laws is the tax collection and management process. Many environmental protection workers in various places are also concerned about tax collection and management issues. Do you think that the current legal system design has laid a sufficient foundation for tax collection and management? What preparations should be made? As far as you know, is there any place already prepared to carry out relevant work? Why hasn't a pilot been launched?

Ge Chazhong: The collection and management of environmental protection taxes have certain particularities, mainly due to the high technical requirements for pollution emission monitoring in the collection of environmental protection taxes, which cannot be separated from the cooperation of environmental protection departments. The Environmental Protection Tax Law has established a management model of "enterprise declaration, tax collection, environmental protection collaboration, and information sharing". Relevant national departments should formulate tax laws and regulations and related supporting measures, and refine the collection and management process. At the same time, the collection and management of environmental protection taxes must comply with the provisions of relevant laws and regulations such as the Tax Administration Law and the Environmental Protection Law.

The environmental protection tax law is about to be implemented, and all regions must enhance their sense of urgency, clarify the responsibilities of each department, do a good job in information communication, and carry out personnel training. Especially in completing the construction, deployment, and debugging of the tax related information sharing platform. As far as I know, Hebei Province and other places are working hard to carry out information docking and other related work. The local tax department is the collection department of environmental protection tax, so the tax system also attaches great importance to it and is carrying out relevant training work. Additionally, it should be noted that some large enterprises have relatively complete internal management and a solid foundation in data accounting and declaration, while small enterprises may face certain difficulties. Therefore, it is necessary to provide tax services and guidance for small businesses.

The introduction of environmental protection tax is a legal requirement, not a policy implementation. It needs to be fully implemented next year, and there is no need to carry out pilot projects.

China Environment News: Article 14 of the Environmental Protection Tax Law stipulates that local people's governments at or above the county level shall establish a mechanism for division of labor and cooperation among tax authorities, environmental protection authorities, and other relevant units. So, what role should county-level and above governments play in the collection of environmental protection taxes?

Ge Chazhong: Environmental protection tax, like other types of taxes, is collected and managed in accordance with relevant laws such as the Tax Administration Law. Due to the fact that environmental protection tax collection and management involves not only tax authorities but also environmental protection departments, the tax law stipulates that local governments at or above the county level should establish a division of labor and cooperation mechanism, which means that local governments need to play a coordinating role. Especially in the preparation and implementation stages of the fee to tax reform, various departments need to work together and cooperate with each other, which requires local governments to actively coordinate and promote the smooth implementation of environmental protection tax collection and management.

China Environment News: Currently, there are issues such as falsified monitoring data in some places. How to levy environmental protection tax in such a situation? Will it affect the effectiveness of environmental protection taxes?

Ge Chazhong: Monitoring data fraud is a problem that exists in individual places, not the norm. The country has issued a series of monitoring norms and standards to constrain and regulate various aspects of automatic and manual monitoring of pollution sources, and the pollution discharge permit system also has strict and detailed regulations on the use of monitoring data. This issue will gradually be resolved and will not affect the management of environmental taxes.

From the current perspective, on the one hand, the Environmental Protection Tax Law stipulates four accounting methods: online monitoring, manual monitoring, material accounting or pollutant discharge coefficient, and sampling calculation. These methods can be cross checked to ensure the authenticity of the data as much as possible. On the other hand, the tax department has the function of inspection, which can deter and crack down on tax evasion and other behaviors. According to tax laws, enterprises need to declare their own taxable amount and must be responsible for the authenticity of the data.

Can the local government adjust the environmental protection tax rate?

Differentiated tax rates can be implemented locally, but they must be within the tax amount range stipulated by tax laws

China Environment News: The pollution discharge fee system allows local governments to increase their fee standards, and the Environmental Protection Tax Law also stipulates that the determination and adjustment of specific applicable tax amounts for taxable air pollutants and water pollutants shall be reported by the provincial, autonomous region, and municipality governments to the Standing Committee of the People's Congress at the same level for decision, and reported to the Standing Committee of the National People's Congress and the State Council for record. This indicates that after the fee to tax reform, the tax rate can also be adjusted. So, according to your estimation, will the local environmental protection tax revenue be higher than the pollution discharge fee revenue?

Ge Chazhong: For localities, although differentiated tax rate policies can be implemented, according to the principle of tax legality, tax rates will be subject to certain restrictions, and tax revenue may not necessarily be higher than pollution discharge fees.

For example, the current fee standard in Beijing is about 10 times the lowest standard, but after the fee to tax reform, it may not necessarily reach the 10 times standard.

China Environment News: VOCs are precursors of pollutants such as PM2.5, and are a general term for volatile organic compounds. We have noticed that although VOCs are not listed as taxable pollutants in tax laws, VOCs such as benzene and toluene have been included in the scope of taxation. In 2015, the Ministry of Finance and other departments introduced pilot measures for VOCs emission fees. What suggestions do you have for the taxation of VOCs?

Ge Chazhong: Some people in the industry have indeed proposed that VOCs should be included in the scope of environmental protection tax collection. However, considering the variety of VOCs and the complexity of their collection and management, VOCs were not included in the tax category in the future. As you can see, although VOCs are not included, types of VOCs such as benzene and toluene are already included in the tax category. Therefore, this is also a direction for future development, which can consider incorporating some types of volatile organic compounds in batches and gradually.

The revision of tax laws requires the approval of the Standing Committee of the National People's Congress, and the modification of tax items cannot be done arbitrarily. Further in-depth research is needed after the introduction of environmental protection tax.