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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. Outline. Introduction Transport fuel taxes in Belgium and China Political Economy Comparison

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Lagging Behind or Catching Up? —A Comparison of Chinese and European Environmentally Related Taxes

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  1. 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

  2. Outline • Introduction • Transport fuel taxes in Belgium and China • Political Economy Comparison • China: NDRC • Belgium: agreement between government and oil sector • Conclusion and future prospects

  3. 1. Introduction China’s Environmental Damage: Source: Wang Jinnan, Chinese Academy of Environmental Planning, MOF-OECD Workshop on Environmental Tax, 2010.10.26

  4. ERT in Belgium and China Environmentally related tax revenue as a % of total taxation

  5. Environmentally related tax revenue as a % of GDP

  6. 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

  7. 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”

  8. Source: Wang Jinnan, Chinese Academy of Environmental Planning, MOF-OECD Workshop on Environmental Tax, 2010.10.26 Revenue of Vehicle Tax from 2001 to 2008 (0.1BY) Blue – Tax on Vehicles and vessel tax (local) Red – Vehicle Purchase Tax

  9. Implicit tax rate on energy

  10. Energy and labour taxation in Belgium • Implicit tax rates: • Energy: ranked 22 in EU27 • Labour: ranked 2 in EU 27 • Room for ETR

  11. China vs Belgium 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.

  12. 2. Fuel tax rates in Belgium and China (euro, current prices)

  13. Excise rates transport fuels, deflated Euro, 1983 prices

  14. Current fuel tax rates

  15. 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

  16. 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)

  17. 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

  18. Oil price and fuel prices

  19. 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

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