China introduces water resource tax

On October 11, 2024, China's Ministry of Finance, Ministry of Water Resources, and State Taxation Administration issued Notice No. 28 of 2024, announcing that a pilot water resource tax will replace the existing water fee system starting December 1, 2024. This tax was initially piloted in 2016 and incorporated into the Resource Tax Law in 2019. The tax applies to individuals and entities extracting water from various sources, with the amount levied based on the volume extracted. While the overall tax burden for general businesses and residents is not expected to change significantly, the policy aims to promote efficient water use by encouraging water-saving practices and imposing stricter regulations on high water-consuming enterprises. Businesses are encouraged to enhance water efficiency through improved production methods and technological upgrades to reduce tax liabilities and support sustainable development.

China’s Ministry of Finance, Ministry of Water Resources, and State Taxation Administration jointly issued Notice No. 28 of 2024 outlining the implementation of the water resource tax on 11 October 2024.

Starting 1 December 2024, a pilot water resource tax will replace the current water fee system in China.

In 2016, China launched a pilot program for a water resource tax, which was officially incorporated into the Resource Tax Law in 2019, featuring different rates across regions.

The tax rates differ by area, with surface water taxed at CNY 0.1 to 1.6 per cubic meter and groundwater at CNY 0.2 to 4.0 per cubic meter.

Taxpayers are required to declare and pay the water resource tax either monthly or quarterly, based on calculations by the tax authorities. If fixed-period payments are not practical, payment can be made according to actual usage. For agricultural production and water consumption that exceeds set limits, declarations and payments must be made annually.

For those who opt for monthly or quarterly declarations, the tax return and payment must be submitted to the tax authority within 15 days after the end of the respective month or quarter.

If taxpayers meet their declaration and payment deadlines, they must file a tax return and remit payment within 15 days of the tax obligation arising. Annual declarations are required within five months following the end of the year.

The taxpayers of the water resource tax are units and individuals who directly extract water resources from rivers, lakes (including reservoirs and water diversion projects), and underground. The water resource tax is levied based on the volume of water extracted.

From the initial pilot reforms, for general businesses and residents, the actual burden will not change significantly. However, to promote the efficient use of water resources, water-saving enterprises will be encouraged, while high water-consuming enterprises and enterprises with low water usage efficiencies will be further restrained.

Businesses can take advantage of this policy, improving water use efficiency, reducing tax burdens, and shifting towards low water consumption and environment friendly development by improving production methods, investing in technological upgrades, and updating old equipment.