Economic Daily丨Deputy to NPC Liu Hanyuan: Reducing Tax Burden of PV Enterprises and Better Promoting National Strategy of Carbon Peaking and Carbon Neutrality
Source: Economic Daily
Editor in Charge: Liu Zhiyuan
During the Two Sessions, the carbon peaking and carbon neutrality goals became a topic of special interest. In the process of moving towards the carbon peaking and carbon neutrality goals, renewable energy represented by PV and wind energy undoubtedly serves as the main driving force.
According to a document issued on February 15 by the Ministry of Industry and Information Technology of the People's Republic of China, in 2021, the PV sector in China focused on carbon peaking and carbon neutrality goals, seized the development opportunities of the sector, continued to deepen the structural reform on the supply side, expedited the industry intelligent innovation and upgrading against the adverse impacts posed by repeated outbreaks of COVID-19, dire economic situation and existence of international trade barrier, bringing a good overall industry operation and achieving a solid start of the "14th Five-year Plan". As countries throughout the world are expediting their move to tackle climate changes, the PV market demand is growing constantly. Data shows that China's PV sector continued to soar in 2021. The manufacturing output value topped RMB 750 billion, with the value of experts of PV products hitting a record high, exceeding USD 28 billion. In 2021, the newly installed PV capacity of China reached a new high record of 54.88GW.
Liu Hanyuan, Deputy to the NPC and Chairman of the Board of Directors of Tongwei Group
At the Two Sessions, Liu Hanyuan, Deputy to the NPC and chairman of the Board of Directors of Tongwei Group, put forward suggestions on fostering sustainable and sound development of renewable energy and reducing tax burden on PV enterprises.
According to Liu Hanyuan, renewable energy, represented by PV, has by now met the general prerequisites for rapid development and fundamental transformation of energy. With constant expansion of the industrial scale and iteration and upgrading of technologies, now, PV has become the most economically efficient and cost-effective method for power generation in many countries and regions. Besides, in terms of carbon emission reductions, with 1 ton of carbon emission generated by manufacturing of PV systems, there will be a reduction of 33 tons of carbon emission every year as a result of the electric power generated by the PV products. This is the most effective approach of energy savings and carbon emission reduction with the largest scale and highest input-output ratio towards the carbon neutrality goal in human history. In recent years, with constant expansion of the industrial scale, rapid iteration and upgrading of technologies, and promotion of intelligent manufacturing, the PV power generation cost dropped drastically in China. The grid purchase price in 2020 already dropped to RMB 0.35/kWh on average. The grid purchase price is expected to drop to a point below RMB 0.25/kWh during the "14th Five-year Plan" period. By that time, the PV power generation cost will be lower than most of coal power plants. Taking into account of ecological environment cost, the advantages of PV power generation are even more prominent. However, due to constant changes in the weather and alternation of day and night, energy storage facilities and and intelligent grid must be built up.
Liu Hanyuan pointed out that as the No. 1 country in PV manufacturing and application in the world, China boasts absolute cost advantage. However, as the technical cost continues to drop, some non-technical costs are limiting the development of the industry. The tax, financial expense, land rent and other related expenses related to PV power generation are lower in other countries, and therefore they enjoy cost advatange over China. Specifically, the tax burden during the PV power generation link is one of the main limiting factors, which objectively hinders development of the industry and slows down the energy transformation and implementation of the carbon peaking and carbon neutrality strategy.
According to Liu, the tax policy for PV power generation projects differs in different regions, which is impeding project construction. In some provinces, municipalities and regions, city and town land use tax is even levied on PV power generation projects built on unused land such as desolate beach, desert, gobi and barren mountain. In some provinces, municipalities and regions, PV power generation projects are located in industrial and mining areas, and city and town land use tax is levied at the same rate as industrial and mining enterprises. Some provinces, municipalities and regions has expanded the scope of tax area, and city and town land use tax is levied on PV power plants located in rural areas. In some provinces, municipalities and regions, city and town land use tax is levied on PV land based on an area that far exceeds the actual floorage.
Apart from that, farmland conversion tax is levied on areas managed as construction land such as substation and living quarters of the PV power generation enterprises if they are located in cultivated land, forest land, beach, aquaculture water surface and garden land. If they are located in organic towns or industrial and mining areas, city and town land use tax will be levied, which is understandable. However, the farmland conversion tax or city and town land use tax levied on assembly erection area of PV power generation projects are apparently not supported by laws and facts. The prerequisite for levying the farmland conversion tax or city and town land use tax is that the land is actually occupied. However, the expression "occupied" is not clearly defined in Law on Farmland Conversion Tax or Tentative Regulations on City and Town Land Use Tax. This has resulted in the difference in implementation deviation of tax authorities, including willful expansion of the tax law interpretation and the "occupied" area.
Besides, substantial investment in fixed assets is required for the PV power generation link, and a large amount of capital will be tied up for a long time, with a long pay back period. With the addition of difficulties in financing of enterprises and related cost, the interest cost accounts for a substantial part of the project cost. Estimates show that the financial expenses account for some 50% of the power generation cost of the power plant. In recent years, the PV sector has been benefited by a series of national preferential policies such as cut in taxes and administrative fees and cost. However, the value-added tax associated with the interest and cost cannot be deducted. This has undoubtedly increased tax burden of the enterprises. If deduction of interest cost input tax is allowed, the value-added tax burden on the banking industry will basically not be influenced, while the tax burden on enterprises will be further reduced. This will be beneficial to the rapid development of the industry.
Liu Hanyuan pointed out that proposal of the carbon peaking and carbon neutrality goals is the prerequisite of transformation of socio-economic development mode, energy production and consumption mode of China, and is also a solemn commitment of China to the global response to climate change. In such a context, the fiscal taxation policy of China should be accordingly adjusted to support the implementation of the will and strategy of the country. This is also a concrete course of action in response to the deployment of the Central Committee of the Communist Party of China and the State Council for the decision to cut taxes and administrative fees. The authorities, while introducing universal policies to cut taxes and administrative fees, should also introduce targeted tax reducing policies, so as to achieve the multiplier effect of policy. Therefore, if it is made clear in the policies that the farmland conversion tax and city and town land use tax shall be reduced or remitted and that the value-added tax shall be deducted or completely remitted, the PV power generation cost can be further reduced, and so will the tax burden on the PV enterprises. This way, the PV enterprises will be under much less burden, and will be able to concentrate efforts on expediting energy transformation and contribute to the carbon peaking and carbon neutrality goals.
With regard to this, Liu Hanyuan put forward the following two suggestions: The first is that the State Administration of Taxation should make clear that the PV module laying areas in the PV power generation projects are exempted from arable land occupation tax and urban land use tax. The second is that the interest cost input tax of enterprises should be included in the deduction. It is suggested that the reform of value-added tax be further deepened to solve difficulties in deduction. The method of calculation and deduction of input tax of purchase of agricultural products may be referred to allow enterprises to calculate the deductible input tax at a rate of 6% of loan service according to the actual interest cost.