Industrial companies in China are being warned they can expect tougher environmental penalties, part of the government's plans to cut pollutant emissions.

The environmental tax plan - which will impose taxes on sulfur dioxide and sewage emissions - has now been submitted to the State Council for approval, after consensus was reached among ministries, according to sources.

Su Ming, deputy director the Fiscal Science Research Center of the Ministry of Finance, said: "The new tax will provide a revenue source for local governments and motivate them to get tougher on environmental protection."

He said that about 90 percent of current pollution charges go to local governments, with the rest going to the central government, and that the new plan is likely to keep a similar distribution ratio.

Experts have previously criticized that pollution charges didn't work well in some areas due to poor implementation at local level.

The timetable for the new plan is unclear, as the process still requires public consultation and legislation, Su said.

"But the determination is there; consensus has been reached and it will be adopted," he said.

A key issue remains the setting of a sensible tax rate.

"It will have little disincentive effect on pollution levels if the rate is too low; but if it's too high, companies won't be able to afford it, given the slow economy," he said.

Su suggested charging 1.26 yuan (about 20 US cents) per kilogram on sulfur dioxide emissions, but added that the real pollution treatment cost of that was much higher, at around 3.4 yuan per kilogram.

In the five years until 2015, China is aiming to keep sulfur dioxide emissions below 20.86 million tons, the State Council said on Tuesday.

"A new tax won't solve all environmental problems, but introducing it will have a profound significance on China's sustainable development and green economy," Su added.

He added there were technical and operational reasons why only two contaminants are being targeted by the new tax plan.

Some had expected ammonia nitrogen and nitrogen oxide emissions, and heavy metals to be included.

Carbon dioxide won't be included. A carbon tax has been devised and will be adopted separately at a later date, he said.

The new environmental tax is expected to be levied on a nationwide basis, instead of being adopted on a "step by step" regional basis.

Jiang Kejun, a researcher at the Energy Research Institute of the National Development and Reform Commission, said it is likely that mainly heavy polluters will be liable, as full coverage by all users is difficult to calculate.

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(China Daily 08/23/2012 page13)