Refining the environment through tax

The PRC Law on Environmental Protection Tax and Interim Provisions on the Administration of Pollutant Discharge Permits

It is now commonplace in China that every winter consecutive smoggy days thrust the issue of environmental protection into the spotlight. Last year was no exception. As if on cue, in December 2016, two important legislative documents in the field of environmental protection were promulgated. Li Huini, of ADAMAS, says that they are a manifestation of the Chinese Government’s willingness to further refine its environmental protection legal framework through new mechanisms. Below she outlines key points of this new legislation.

The PRC Law on Environmental Protection Tax

On 25th December, 2016, the Standing Committee of the National People’s Congress passed the PRC Law on Environmental Protection Tax (EP Tax Law), which will come into force as of 1st January, 2018. This 28-article law represents China’s 19th tax category and will serve as the foundation for this tax regime, which will be completed by the release of further implementation rules over the coming years.

Regardless of its nature as a new tax category, the introduction of the EP Tax does not automatically mean that business entities in China, especially manufacturing enterprises, will have to bear an additional financial burden. According to Article 27 of the EP Tax Law, upon the law coming into effect, the existing pollutant discharge fees will be abolished and replaced by the EP Tax. Of course, this new legal instrument is a more sophisticated mechanism given that it will be integrated into China’s overall taxation system.

Tax payers and taxable pollutants

Those that will be subject to the EP Tax are the enterprises and entities (dischargers) that directly discharge taxable pollutants into the environment within PRC territory, or the sea area that falls under the jurisdiction of the PRC. Taxable pollutants under the EP Tax Law include atmospheric pollutants, water pollutants, solid waste and noise.

Dischargers who are not obliged to pay the EP Tax include those that discharge pollutants to facilities for centralised treatment of wastewater or household waste and those who store or dispose of solid waste at facilities and locations that meet the national and local standards for environmental protection.

Taxation basis and payables

The taxation basis for each kind of pollutant is as follows:

  • Atmospheric: the pollution equivalent calculated according to the discharge volume.
  • Water: the pollution equivalent calculated according to the discharge volume.
  • Solid: the discharge volume.
  • Noise: any decibel level that exceeds the national standard.

The pollution equivalents for atmospheric and water pollutants are to be calculated according to the equivalent index listed in the appendix of the EP Tax Law.

It should be noted that not all pollutants that fall under the aforementioned four categories will be taxed. Instead, for the atmospheric pollutants from one discharge outlet, only the pollutants with top three pollution equivalent are taxable; while for water pollutants, the top five in the first category of water pollutants and the top three in other categories of water pollutants are taxable.

Tax payable will be calculated by multiplying the abovementioned taxation basis by the fixed, per-unit tax amount, which can vary quite a lot (for instance, from CNY 1.2 to CNY 12 for atmospheric pollutants), with each needing to be fixed at the provincial level.

Tax concessions and collection

The EP Tax Law specifies several circumstances under which the EP Tax may be exempted. These include: agricultural production (excluding large-scale breeding); movable pollution discharge, such as vehicles; and discharging wastewater or household waste by centralised treatment facilities in line with national and local standards. To be noted here is that centralised treatment facilities for industrial wastewater or solid waste are not included in the tax exemption.

With the integration of the pollutant discharge fee into the taxation system, the EP Tax Law assigns the work of tax collection to the tax authorities. In the meantime, coordination is to be set up between tax authorities and environmental protection authorities in order to guarantee efficient and precise tax collection. Tax authorities should inform environmental protection authorities about the tax payment status of tax payers, while the latter should provide the former with information on the pollution discharge status of the tax payers.

Interim Provisions on the Administration of Pollutant Discharge Permits (PDPs)

While the EP Tax indicates that an individual discharger must pay tax for its discharge, the PDP mechanism goes a step further, stipulating that for certain types of discharge, a permit is a prerequisite before discharge can take place.

The PDP mechanism has been implemented on a trial basis since 1987, in many cities across China. It applies mainly to wastewater discharge (according to the PRC Law on the Prevention and Control of Water Pollution) and atmospheric pollutant discharge (according to the PRC Law on the Prevention and Control of Atmospheric Pollution). The ‘constitution’ of PRC environmental laws and regulations, i.e. the Environmental Protection Law, for the first time adopted this mechanism in its latest revision in 2014. On 23rd December, 2016, the Ministry of Environmental Protection (MEP) promulgated the Interim Provisions on Administration of Pollutant Discharge Permits (Interim Provisions), effective as of their promulgation.

Dischargers subject to PDPs

Dischargers subject to PDPs are those included in the Pollutant Discharge Classified Management List, in particular: entities that discharge industrial waste gas or poisonous or harmful atmospheric pollutants; operators of centralised, coal-fired heating facilities; entities that discharge industrial wastewater or medical wastewater to waterbodies, either directly or indirectly; operators of urban and industrial wastewater treatment facilities; as well as other entities prescribed by law.

In January 2017, the MEP published the Trial Category on Classified Management of Pollutant Discharge Permit for Solid Pollutant Sources (Trial Category) for solicitation of public opinions. According to the output and discharge quantity and the harmful effect of diverse industries, the Trial Category lists the industries that are subject to PDP administration. For each industry, the dischargers are subject to either normal PDP administration, simplified PDP administration or temporary exemption from PDP administration. The Trial Category helps dischargers to understand whether or not their industries are subject to PDP administration, which type of administration is applicable and the deadline for application of such administration.

Applying for and obtaining PDPs

Dischargers should apply for PDPs in accordance with the technical requirements published by the MEP. Relevant information will be made public for at least five days prior to the application. The application should be submitted online through the information platform managed by the MEP, and on paper to the competent environmental protection bureau, normally at the municipal level.

When reviewing the application documentation submitted by the discharger, the authority may conduct an onsite inspection or organise a public hearing, expert assessment or similar. If not, the PDP will be issued to qualified applicants within 20 days of all the documentation being accepted.

The first PDP issued according the Interim Provisions is valid for three years with the possibility of extending it for five years.

PDP administration

Discharge of various water and/or atmospheric pollutants by the same entity should be authorised through one comprehensive PDP. The national PDP administration information platform is to be set up and managed by the MEP. Application, issuance, modification, extension, revocation of PDPs, as well as information publication required by law, should be carried out through this platform.

On the PDP, information including the location and number of outlets, the method of discharge, the discharge direction, the types of pollutants involved and the density and quantity of pollutants are to be explicitly indicated. Before verifying the pollutant discharge detail, the Environmental Protection Bureau refers to the pollutant discharge standards, the local total discharge limit and the environmental impact assessment approval, among others.


The PDP is the core implementation tool for total quantity control of pollution and the practice of trading on pollutant discharge rights. The overall administration mechanism for pollution control can be depicted as follows:With the effectiveness of the PDP mechanism nationwide, trading on pollutant discharge rights and other detailed regulations and practices are expected to be further refined in 2017. While this may lead to an increase in environmental protection-related costs for enterprises, it will make such costs more transparent and predictable.


Founded in 1969, ADAMAS advises major European companies, institutions, public entities and governmental authorities on business and public law matters and assists them in litigation. In Mainland China, ADAMAS is the oldest existing foreign law firm licensed by the PRC Ministry of Justice to practice in the field of law. ADAMAS now has representative offices in Beijing and Shanghai, and partner offices in Chengdu, Guangzhou and Wuhan.

With its professional practical experience and expertise developed over four decades, ADAMAS has become now one of the leading European law firms in this dynamic and largest economic entity of Asia. Especially in the fields of environment, energy, construction and infrastructure ADAMAS successfully integrated its European expertise into its China practice and shares the best know-how with its clients and partners.