lagging behind or catching up? —a comparison of chinese and european environmentally related taxes

Lagging Behind or Catching Up?—A Comparison of Chinese and

European Environmentally Related Taxes

Kris Bachus, University of Leuven, Belgium

Jing Cao, Tsinghua University, Beijing, China

Outline1. Introduction

2. Transport fuel taxes in Belgium and China

3. Political Economy Comparison1. China: NDRC

2. Belgium: agreement between government and oil sector

4. Conclusion and future prospects

1. IntroductionChina’s Environmental Damage:

Source: Wang Jinnan, Chinese Academy of Environmental Planning, MOF-OECD Workshop on Environmental Tax, 2010.10.26

ERT in Belgium and China

Environmentally related tax revenue as a % of total taxation

Environmentally related tax revenue as a % of GDP

Pollution Levy System in China (history)

Levy System (5 Stages) 1978-1981: trial program on Pollution Levy

System 1982-1987: extend trial program to the whole

country 1988-1993: Capacity building and Deepening

Existing System 1994-2002: explore reform, Acid Rain

control zone trial program Since 2003: Levy Reform

2007 ， State Council - 《 Work Plan on Energy Saving and pollution Reduction 》 - announcing the Chinese government will implement environmental tax policy

2006 ， State Council – in 11th Five Year Plan- “Consider Environmental Protection Needs in further Reform of Resource Tax, Consumption Tax, Import/Export Tariff, and Explore Environmental Tax Reform”

May 2009, State Council (via NDRC) announced to study the implementation of an environmental Tax

May 2010, State Council (via NDRC) announced to study “Detail Plan on Resource Tax Reform, Steadily Introduce Property Tax Reform, Finalized Consumption Tax Reform and Study Detail Plans for Environmental Tax Reform”

Environmental Tax Reform in China (History)

Revenue of Vehicle Tax from 2001 to 2008 (0.1BY)Blue – Tax on Vehicles and vessel tax (local)

Red – Vehicle Purchase Tax

8

Source: Wang Jinnan, Chinese Academy of Environmental Planning, MOF-OECD Workshop on Environmental Tax, 2010.10.26

Implicit tax rate on energy

Energy and labour taxation in Belgium

Implicit tax rates: Energy: ranked 22 in EU27 Labour: ranked 2 in EU 27

Room for ETR

China vs BelgiumVAT Labor Tax Pollution

(Tax Base)WTP

China High Low High Low

Belgium Low High Low High

China’s fiscal structure is very different from Belgium or other OECD countries. VAT + Business Tax counts for 46% of total tax revenue, while labor income tax counts for only 6.6% in 2009. Revenue Recycling with VAT/BT will result in different fiscal outcome compared to Europe.

Baseline Pollution Level is very high in China, while the willingness to pay is low, and abatement costs are lower in China.

All of these need to be taken into account when comparing with Europe case, and the likely negative distribution impacts need to be addressed considering China is a high Gini country.

2. Fuel tax rates in Belgium and China

(euro, current prices)

Excise rates transport fuels, deflated

Euro, 1983 prices

Current fuel tax rates

2009 China tax fuel reform Tax rate increased from 0.2 yuan/liter to 0.8 for

diesel, 1.0 for unleaded and 1.4 for leaded gasoline

Part of the increase is adjustment for inflation after 26 year of unchanged rate

Other part of the increase is a actually a shift away from a number of fuel and other transport related charges?

Disagreement within government

3. Political Economy

“Polluter Pays Principle” China’s Hierarchy Environmental

Regulation Structure Belgium: oil sector ↔ China: lobby of

government departments and local governments (provincial + municipal)

Fuel price setting

Belgium: Taxes: ministry of finance & government

China: NDRC sets the price Less responsive to international oil price

fluctuations (just a few adjustments per year, compared to 35 in Belgium)

Ministry of finance sets tax rate

Oil price and fuel prices

4. Conclusion and future prospects Belgium: old government had plans for

modest ETR, but now waiting for the new government.

China Reform levy to tax Carbon tax? 12th 5-year plan