In response to the current environmental tax system's issues such as insufficient regulation of environmental behavior, lack of substantial green innovation promotion, limited incentives for guiding green consumption and production, and the need to enhance its role in carbon emission reduction, experts suggest further deepening the reform of the environmental tax system and improving various tax incentive policies.

Dong Zhanfeng, the head of the Institute of Environmental Management and Policy Research at the Environmental Planning Institute of the Ministry of Ecology and Environment, and a researcher at the Environmental Protection Tax Research Center, along with other experts, recently wrote in the "Journal of Beijing Administrative College" that environmental tax system innovation should further strengthen its regulatory function on environmental behavior, tap into its nurturing function for green productivity, stimulate its guiding function for green consumption and production behavior, and expand its supportive role in achieving the goals of carbon peak and carbon neutrality.

The environmental tax system not only has the inherent attribute of environmental governance but also has a systemic advantage in regulating green production and consumption. Innovation in the environmental tax system is of great significance for continuously and deeply advancing pollution control, accelerating the green transformation of development methods, and achieving a modernization where humans and nature coexist harmoniously.

Dong Zhanfeng introduced that the environmental tax system plays an important foundational role in continuously and deeply fighting for blue skies, clear waters, and clean soil, strengthening the management of solid waste and new pollutants, and building a beautiful China with ecological cleanliness and beauty. This is achieved through determining pollutants, adjusting the punishment intensity of polluting behaviors, and increasing the incentive level for environmental protection behaviors, using main green taxes such as environmental protection tax, resource tax, arable land occupation tax, and urban land use tax.

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The environmental tax system promotes the greening and low-carbon development of economic and social development through internal tax incentives, using tax forms such as resource tax, consumption tax, vehicle and vessel tax, vehicle purchase tax, value-added tax, and corporate income tax, and accelerates the green and low-carbon transformation in energy, industry, transportation, urban and rural construction, agriculture, and other fields.

In addition, the environmental tax system leverages the composite tax advantage of "multiple taxes co-governing" and "multiple policies combining" to regulate green production, investment, and R&D on the supply side, encourage green consumption and curb high-emission consumption on the demand side, smooth the green energy-saving chain and develop a circular economy in the circulation link, combine source prevention with end treatment, and deeply advance the construction of a beautiful China in multiple links.

However, experts have also found that the environmental protection tax, as the main tax for controlling pollutant emissions, mainly taxes the emissions of four types of taxable pollutants: air pollutants, water pollutants, solid waste, and noise, and the scope of environmental behavior regulation is relatively narrow, with limited effects on ecological environment protection and governance.

Dong Zhanfeng introduced that the standards for environmental protection tax are not perfect, and the environmental regulation function needs to be strengthened. On the one hand, the overall standards for the collection of environmental protection tax are relatively low, and the incentive effect for enterprises to actively reduce pollution needs to be further improved; on the other hand, areas with lower environmental protection tax rate standards in the western regions of China are prone to attract high-pollution, high-emission enterprises to settle, becoming "tax lowlands."

The environmental tax system has a systemic advantage in regulating green production and consumption. Photography/Zhang Ke

Experts' research also found that the overall greening degree of China's tax system is not high, which weakens its rigid constraint on pollutant emissions. In 2022, the revenue from China's environmental protection tax accounted for only 0.89% of the total revenue of the environmental tax system, which is still at a relatively low level internationally.Research indicates that when enterprises anticipate receiving more government subsidies and tax incentives, the number of non-invention patent applications significantly increases, suggesting that fiscal and tax measures may lead companies to innovate "for the sake of support." Non-state-owned enterprises also exhibit a certain degree of strategic innovation behavior. Corporate innovation activities may be more focused on end-of-pipe treatment innovation rather than source control innovation, and these activities show a strong path dependence. That is, corporate green innovation activities are concentrated on improving the efficiency of fossil fuel use and reducing pollutant emissions at the end of the process, rather than innovating in the new energy field that fundamentally reduces pollutant emissions.

Experts such as Dong Zhanfeng have pointed out that currently, consumption tax, as a key tax species directly regulating green consumption, still falls short in guiding green consumption and curbing the consumption of highly polluting and energy-intensive products. The existing green taxable items under the consumption tax are limited, restricting the scope of green consumption regulation. For instance, coal and chemical products that use a large amount of coal in their production process, disposable plastic products, pesticides, and high-end dye industry products have not been included in the consumption tax collection scope. China's consumption tax is mostly levied at the production stage, which diminishes consumers' direct perception of tax costs and is not conducive to conveying the policy intentions of green consumption to consumers.

Research has found that environmental protection taxes and resource taxes, as indirect regulatory measures for green production and consumption, also have limited incentives for green consumption and production. Studies show that the impact of environmental protection taxes on the public's level of green consumption is difficult to exert in areas with low economic development and education levels. The green constraint effect of the environmental tax system on the production side is also not strong.

"Our country has not yet formed an environmental tax species that has binding force on carbon emission reduction," Dong Zhanfeng introduced. Environmental protection taxes, resource taxes, vehicle and vessel taxes, and vehicle purchase taxes, as green tax species closely related to carbon emissions, have an obviously insufficient carbon emission reduction effect. The taxable objects of the environmental protection tax do not include carbon dioxide emissions, and its carbon reduction effect is minimal.

In addition, the current resource tax rates and taxable items are not conducive to reducing carbon emissions. The coal resource tax rates implemented by most provinces (regions, cities) in China are below 6%, and the carbon emission level of natural gas is low. The resource tax rates for crude oil and natural gas are also 6%, which is not conducive to guiding enterprises towards green, low-carbon, and energy-saving production. Experts have introduced that China's preferential tax and fee policies for green and low-carbon development have not covered the research and development and application of coal clean and efficient utilization, carbon capture and storage, and other technologies, as well as personal green and low-carbon consumption.

Experts have stated that the current environmental tax system needs to further deepen the reform of the environmental tax system, including optimizing environmental protection taxes, expanding resource taxes, improving consumption taxes, and other tax species, as well as studying the introduction of carbon taxes, improving various tax preferential policies, and strengthening tax collection and management.

In terms of specific reform directions, experts suggest including pollution factors with heavy pollution control tasks and tax management capabilities, such as volatile organic compounds (VOCs), light pollution, and construction solid waste, in the environmental protection tax items to further expand the scope of environmental protection taxes and resource taxes. Establish a tax rate grading system and a regular assessment mechanism for tax rate standards to improve the specificity of environmental protection tax rate standards. Improve the supervision and assessment mechanism for local environmental tax collection and management to enhance the efficiency of environmental tax collection and management. Increase the tax incentives for corporate income tax and value-added tax, and for different types of enterprises, strengthen precise tax support according to their characteristics and needs for green production, research and development, and investment.

At the same time, increase the collection efforts of sewage treatment fees and solid waste disposal fees, and raise the levels of water prices, electricity prices, and natural gas prices, etc., to create a reasonable constraint on high-energy-consuming and high-polluting tax and fee policy environment through cost compensation. Expand the scope of consumption taxes, postpone the tax collection link, implement ex-factory collection, adjust the tax rates of related tax items, and other measures to guide green consumption and production activities. Moderately increase the resource tax rates for coal, crude oil, etc., provide necessary resource tax incentives for natural gas development, study the introduction of carbon taxes, and increase tax preferential policies for green and low-carbon development.