China - Tax Incentives And Policy Support For “Green Pacesetter” Enterprises.
Legal News & Analysis - Asia Pacific - China - Tax
30 January, 2020
Introduction: With the implementation of the second round of environmental inspection by the Ministry of Ecology and Environment (“MEE”) in 2019, enterprises are now more aware of the implementation problems stemming from the government’s investigation and punishment under the new environmental regulations. However, it should be noted that the MEE seeks not only to strengthen law enforcement and inspection but also to encourage “green pacesetter” enterprises. Therefore, there have been many incentives provided by the government to support enterprises in complying with the new regulations. Particularly, government departments have issued a series of incentives in recent years in the form of preferential taxes (ie. tax incentives), subsidies and other general support to “green pacesetter” enterprises in addition to the emissions trading scheme for surplus emissions. In the process of establishing China’s environmental credit system, these measures will play a positive role in encouraging environmental compliance of enterprises. Leading enterprises in green and low-carbon development activities may consider the following measures in complying with current environmental regulations.
I. Tax Incentives
According to the “Environmental Protection Tax Law”, which came into effect in 2018, the environmental protection tax payable can be discounted in specific situations. Specifically, environmental tax payable will be discounted by 25% when the concentration value of the taxable pollutants discharged by a taxpayer is 30% lower than the pollutant discharge standards as prescribed by the state or the local area. Moreover, where the concentration value is 50% lower than the prescribed standards, the environmental protection tax can be collected at a half the original tax rate. At the same time, the Ministry of Finance and the State Administration of Taxation also issued corresponding incentives for value-added tax (“VAT”) targeted at green development enterprises. Under this policy, VAT will be refundable for specific categories of products including those classified as green products as well as resource comprehensive utilisation and waste recycling services in which VAT will be refunded immediately after its collection. Local governments have also responded and issued corresponding tax preferential policies at the provincial level. This was seen, in 2017 where the Shandong provincial government proposed to reduce 15% of enterprise income tax for green mining demonstration projects of high-tech enterprises. In 2019, the Jilin provincial government also made a similar proposal to introduce preferential tax policies for environmental protection enterprises such as inclusive tax reduction for small and micro enterprises.
II. Financial Support
In recent years, the state government has promulgated a series of laws and regulations to promote the development of green finance. In the “Opinions on Supporting and Serving the Green Development of Private Enterprises” jointly promulgated by the Ministry of Ecology and Environment and the All-China Federation of Industry and Commerce in January, 2019, it is mentioned that the government should encourage private enterprises to set up environmental protection venture capital funds and issue green bonds, promote financial institutions to innovate green financial products, and develop green credit in order to solve the difficulty of financing environmental management activities in private enterprises. At present, all major banks have introduced green bonds, covering green projects involving clean energy, green transport, garbage disposal, and etc. Some local governments have followed suit by issuing corresponding policies as seen in Jiangsu Province where subsidies are given for non-financial enterprises that successfully issue green bonds (bond instruments that use the funds to finance green projects meeting the prescribed conditions). Here, the subsidy given is generous, with up to 30% of the annual actual interest paid subsidised for a maximum of two years. At the same time, local government and social ventures have set up green development funds to compensate certain losses incurred from the operation of green development enterprises. Moreover, the Hebei provincial government and many others have also set up environmental protection funds to solve the financing difficulties of green enterprises.
III. Financial Rewards
As the state government encourages the establishment of “green pacesetters”, the Ministry of Industry and Information Technology carries out an evaluation of enterprises annually. The best enterprises will then be bestowed with honorary certifications like those for the ‘green demonstration industrial plant’ and ‘green demonstration industrial zone’. Many local governments have issued corresponding policies to give financial rewards to enterprises that have obtained such national green certifications (including but not limited to Beijing, Shanghai, Tianjin, Henan, etc.). Many local governments have also started to carry out local assessments and give subsidies and awards for enterprises in other fields such as in insurance and science. For example, in 2019, the Jiangsu provincial government proposed to grant subsidies of up to 40% of the annual paid-in premium to eligible enterprises with environmental pollution liability insurance, and to give listing rewards to qualified enterprises engaged in green production. The Jilin provincial government also proposed this year to give financial rewards to recognized environmental technology enterprises and enterprises that have obtained invention patents in the environmental field. In addition, it is worth noting that many local governments (including but not limited to Shanghai, Beijing, Zhejiang, Gansu, Henan, etc.) have issued very high value clean-energy subsidy policies. In practice, there are enterprises that applied for and successfully received subsidies of more than RMB 10 million.
IV. Conclusion and further suggestions
In summary, under the background of the “Pollution Control Battles” and strengthening of environmental law enforcement, enterprises may need to start paying attention to these regulations and find ways to improve their level of environmental compliance management to avoid possible punishment. On the other hand, they may also try to be green pacesetters by paying attention to the preferential policies and support of government departments. They can then make an informed decision on whether the enterprise can, in its current state, satisfy the conditions to apply for a certain tax incentive or another form of financial support and reward.
ZHU, He (George), Partner, Jun He