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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
Outline
1.
2.
3.
Introduction
Transport fuel taxes in Belgium and China
Political Economy Comparison
1.
2.
4.
China: NDRC
Belgium: agreement between government and oil
sector
Conclusion and future prospects
1. Introduction
China’s Environmental Damage:
Source: Wang Jinnan, Chinese Academy of Environmental Planning, MOFOECD Workshop on Environmental Tax, 2010.10.26
ERT in Belgium and China
Environmentally related tax revenue as a % of total
taxation
6.0
5.0
4.0
Belgium
China
3.0
2.0
1.0
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008
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
Environmental Tax Reform in China (History)




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”
1200
1000
800
600
400
200
0
2001
2002
2003
2004
2005
2006
2007
2008
Revenue of Vehicle Tax from 2001 to 2008 (0.1BY)
Blue – Tax on Vehicles and vessel tax (local)
Red – Vehicle Purchase Tax
Source: Wang Jinnan, Chinese Academy of Environmental Planning, MOF-OECD
Workshop on Environmental Tax, 2010.10.26
8
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 Belgium
VAT
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