2011 9th issue: Su Ming: China¡¯s Fiscal Policy on Energy Conservation and Emission Reduction
Su Ming, Deputy director of Research Institute for Fiscal Science of the Ministry of Finance
Time: 10/09/2011 Source: IEEPA
As for China¡¯s fiscal policy on energy conservation and emission reduction, I will talk about something from two aspects: 1. the trend of fiscal policy during the 12th five-year plan; 2. analysis on the future fiscal policy on energy conservation and emission reduction. During the 12th five-year plan, China's fiscal policy will focus on following question: effectiveness of fiscal reform and development, existing question. As we all know, active fiscal policy has been implemented since the later half year of 2008, which will last in the next two years.
1. We shall vigorously support energy conservation and emission reduction in terms of business income tax. Since 2008, China's business income tax has reached four unification by combining two taxation systems. First, new uniform tax laws for foreign funded enterprises; second, uniform pretax deduction, which is a kind of enterprises' cost or expenses disbursement. Since 2008, China has standardized the cost disbursement scope for foreign-funded and domestically-funded enterprises; third, standardize tax preferential policy; fourth, standardize tax policy.
2. China implemented favorable exchange rate for high and new technology enterprises. High and new technology enterprise means an entity with proprietary intellectual property rights, and three proportion (of R&D, high-tech product income and technicians) in line with national provision, which may enjoy 15% tax rate.
3. Industry preference. The preferential means on income tax for emerging strategic industries like energy conservation and environmental protection industries, products, and services cover tax relief, pretax additional deduction, investment tax compensation, reduction in sales revenue and accelerated depreciation.
4. Tax increase and transformation. Since 2009, China has converted production-based value added tax into consumption-based one. Business tax may be deducted for enterprises' newly purchased equipments, and can be continuously deducted if it is unfinished in the same year. The tax rate of small-scale taxpayer has continued to decrease to present 3% since 2009. Enterprises' tax burdens were essentially decreased via levying and reform. The research on the reform of value added tax during "the 12th FYP" is underway, and the reform objective is to cancel business tax, and convert business tax into value added tax, which is China's long-term reform direction. Business tax on communication, transport and building installation during "the 12th FYP" period are very likely to be changed into value added tax, whose goal is to develop property industry, lower its tax burdens, develop value added tax, which is conducive for China's energy conservation and environmental protection action.
5. Reform on export rebates. China's export rebates policy during "the 12th FYP" is an structural policy, which means that we shall increase export rebates rate of general goods, or current 13% export rebates rate according to economic development situation. At the same time, we shall reduce or even cancel export rebates for high-pollution, high-energy-consumption and resource-type goods.
6. China will execute favorable tariff policy on import of advanced equipments and spare parts.
7. Reform on resource tax. China's pilot reform on resources tax has been launched in Xinjiang as of June 1, 2010. Such pilot has expanded to 10 provinces and cities in west China since December. At the same time, China will further reform resources tax from following aspects: first. expand resources tax reform from the western region to the whole country; second. expand incidence of taxation from crude, natural gas to coal and mineral products; third. crude oil, natural gas and coal will be levied on prices, and other minerals will be levied on quantity.
8. Reform on other taxes. (1) fuel tax. the reform on fuel tax as a whole is very successful, road toll was cancelled and replaced with fuel surcharge, which is more fair, and beneficial for energy conservation. (2) reform on construction tax and education tax. Since last year, China has canceled the levy on construction tax and education tax on foreign-funded enterprise and joint ventures. (3) reform on local tax, which includes i. legislative power, hand the policy on local tax and legislative right to local governments in a proper way, ii. reform on property tax, which was vigorously executed during "the 12th FYP", and house property tax, as a focal point, has been put on trial in Shanghai, Chongqing. House property tax is very conducive to long-term and healthy development of China's property industry, as well as energy conservation. The policy framework of house property tax include not only increment, but unit, which means all of the house property shall be levied. Such tax shall be deducted in the light of definite standard, and duty free is available for difficult group. China's housing and land tax shall start from a low tax rate, and be set according to its own conditions. At present, currently, overseas house property tax is about 1% to 3%. (4) reform on environmental tax and carbon tax, which is conducive for China's economic transformation, environmental protection and energy conservation. During "the 12th FYP", Chinese government stipulated clearly that environmental tax shall be imposed. After vast and deep investigation and research, we find it is reasonable to levy on pollutant discharged from enterprises, which cover exhaust gas, waste water, solid waste, noise and so on. As for environmental tax, first, we shall convert charge into revenue, second, we shall increase standard in a proper way, which means that we make choice between present charging standard and ideal pollution treatment cost, for example, the cost of sulfur dioxide issued by representative enterprise is 0.3-0.4 Yuan, and we can make choice between them. We propose that environmental tax shall be levied by taxation administration, and assisted by environmental sectors. Carbon tax is aimed at carbon dioxide, and collected objects are coal, crude oil and natural gas. There are two reasons for China's levy on carbon tax, on the one hand, China needs to address climate change, and conserve energy; on the other hand, China is facing great pressure internationally. During "the 12th FYP", China has considered the transformation of economic development pattern as subject and main road, and environmental tax and carbon tax will play an important role in this regard. Furthermore, China shall impose carbon tax at low tax rate, namely whether 10 Yuan per ton on carbon dioxide is reasonable or not. Through vast model and calculation, we found that low tax rate had a considerable influence on enterprises, industries and economies, and has remarkable influence on policy direction and effect on China's address on climate change, emission reduction in the long run. In the end, while imposing carbon tax, we shall offer some preferential policies. Study showed that 2/3 of China's carbon dioxide emission were from enterprises, and 1/3 from individuals. Consequently, enterprise are key factor. Great resistance emerges when the carbon tax is released, if no individual get involved, the job will likely go smoothly. Proper preference shall be offered for intensive energy-consumption enterprise in their beginning.
9. Policy on environmental investment and charges. We shall integrate budget input with national debt investment channel to ensure reasonable growth on environmental investment. At the same time, we shall raise charging standard, attach equal importance to both source and terminal control on special environmental protection fund. At present, the special environmental-protection fund is governed in the terminal link, and shall be governed in the source in the next.