Pilot program to levy tax on VOC emissions in 2027
China will launch a pilot program in 2027 to levy an environmental protection tax on volatile organic compounds, or VOCs, a key contributor to smog and ozone formation, expanding its green tax system to cover a broader range of air pollutants and intensifying air pollution control.
The pilot, jointly rolled out by the Ministry of Finance, the State Taxation Administration and the Ministry of Ecology and Environment, will bring VOCs that were previously untaxed under the existing framework into the tax net. The move has been made possible by years of progress in emission standards, product specifications and emissions accounting methodologies.
Eight major industrial sectors, including printing, petrochemicals, pharmaceutical manufacturing and steel and automobile production, will be the first to participate. Together, they account for more than 70 percent of the country's industrial VOC emissions.
According to a media release jointly issued by the three government bodies following the announcement of the pilot in late July, more than 300 types of VOCs can currently be monitored in China.
When the Environmental Protection Tax Law was enacted in 2016, however, only 18 toxic or odorous VOCs were subject to taxation, as monitoring and accounting methods were not yet mature enough to support broader coverage, the release said.
In recent years, China has made steady progress in VOC emission standards, product standards and emissions accounting methods, creating the technical foundation for a wider tax regime, the release said. The pilot reflects the country's growing capacity to move from partial control toward full-process, full-chain VOC governance.
VOCs are important precursors of ozone and PM2.5 particulate matter and are closely linked to haze and photochemical smog. Sunlight and high temperatures, for example, can trigger chemical reactions between VOCs and nitrogen oxides that lead to the formation of ozone.
According to the implementation rules, the tax rate will range from 8 to 12 yuan ($1.2-1.8) per pollution equivalent. Provincial-level governments will determine the specific applicable rate within that range, taking into account local environmental carrying capacity, current VOC emission levels and broader economic, social and ecological development goals.
For tax purposes, taxable VOC emissions will be converted into pollution equivalents. The number of pollution equivalents is calculated by dividing taxable VOC emissions by 0.95 kilograms, the prescribed pollution equivalent value for VOCs.
The pilot program includes tax incentives for companies with strong environmental performance. Taxpayers with a Grade A rating in the key industries' four-tier air-quality performance assessments will pay 50 percent of the standard tax, while those with a Grade B rating will pay 75 percent.
The release said the approach both rewards top performers and encourages a broader shift among companies toward environmentally friendly raw material substitution, cleaner production technologies, enhanced collection systems and more rigorous end-of-pipe treatment.
"The pilot program is an important part of deepening the reform of the fiscal and tax system and improving the green tax system," said Xu Wen, a researcher at the Chinese Academy of Fiscal Sciences.
It will help drive comprehensive VOC governance throughout the full process and the entire value chain, thereby facilitating emission reductions, Xu added.
Lei Yu, head of the Institute of Atmospheric Environment under the Chinese Academy of Environmental Planning, also lauded the pilot program's incentive-based approach, encapsulated in the principle of "more emissions, more tax; fewer emissions, less tax".
"It will compel companies to bear the consequences of their emissions through higher tax payments, and in turn force them to intensify in-depth governance across the entire process and all links, while accelerating green transformation and upgrading," Lei said.
Xinhua contributed to this story.
houliqiang@chinadaily.com.cn
