China To Introduce Nationwide Water Resource Tax

In an attempt to give local governments that are heavily indebted additional money, China’s Ministry of Finance announced that it would extend the Water Tax Interim Measures from ten provinces to the entire country, with effect from December 1.

According to the ministry, the actions are intended to protect water resources, reduce excessive groundwater use, alleviate the widening supply-demand imbalance, and improve the taxation system.

“Local governments will receive all water resource tax revenues in order to increase their independent financial resources, diversify local tax bases, and suitably increase the management authority over local taxes,” the statement stated.

However, the move is thought to be primarily symbolic because the new increase for local authorities is only projected to be billions of yuan, which is significantly less than their confirmed debt of 43.6 trillion yuan (US$6.1 trillion) and their estimated secret debt, which is likely to be trillions of yuan.

With further steps like higher central government transfer payments and additional local levies like the consumption tax, it did, however, signal a further goal to assist in restoring local budgetary capacity.

The federal government receives 10% of the revenue from water resource fees, while the local governments split the remaining earnings.

Hebei province, a water-stressed northern region, was the site of China’s 2016 pilot water resource tax, which was formally incorporated into national law in 2019.

The new 33-point plan exempts rural organizations from paying taxes on water used for household purposes, public safety, drought assistance, and water taken from nearby reservoirs.

It will establish high tax rates for enterprises including as car washes, bathhouses, golf courses, and ski resorts, as well as for groundwater use in water-stressed areas.

Manufacturing businesses, which use 16% of the nation’s water, must adhere to certain efficiency requirements in order to be eligible for a 20% tax cut the next year.

“By encouraging businesses to improve water use efficiency through conservation efforts and technological innovation, the tax seeks to increase their awareness and motivation for water conservation,” the finance ministry stated.