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The Unintended Consequence: The Shift from Environmental Fees to Taxes and Corporate Tax Compliance

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  • Xin-Ying Ren

    (Longshan Honor College, Shandong University of Finance and Economics)

Abstract

This study investigates the unintended consequences of China’s reform shifting from environmental pollution fees to an environmental protection tax. Utilizing a difference-in-differences model with A-share listed companies as a quasi-natural experiment, we analyze the policy’s impact on corporate tax compliance. The results indicate that the reform significantly reduces tax compliance among heavily polluting firms. Mechanism analysis reveals that increased regulatory pressure and internal cost burdens drive firms to adopt avoidance strategies, specifically through related-party transactions and strategic inter-provincial relocation to regions with lower tax rates. Heterogeneity analysis shows these negative effects are more pronounced in firms with high pollution intensity, regions with strict environmental regulations, and areas with weak tax enforcement. These findings highlight the risk of strategic avoidance undermining fiscal order and suggest the need for enhanced inter-departmental coordination, unified national tax standards, and optimized incentives to balance environmental governance with tax compliance.

Suggested Citation

  • Xin-Ying Ren, 2026. "The Unintended Consequence: The Shift from Environmental Fees to Taxes and Corporate Tax Compliance," Advances in Economics, Business and Management Research,, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6239-699-9_27
    DOI: 10.2991/978-94-6239-699-9_27
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