China will carry out a pilot program to levy environmental protection tax on volatile organic compounds (VOCs) starting Jan. 1, 2027, as part of efforts to strengthen air pollution control and expand its use of green taxation, authorities said Friday.

The Ministry of Finance, the State Taxation Administration and the Ministry of Ecology and Environment jointly issued a notice detailing the pilot, under which all VOCs will be brought into the scope of environmental protection taxation.

"The move is an important step in deepening fiscal and tax reforms and improving China's green tax system," said Xu Wen, a researcher at the Chinese Academy of Fiscal Sciences. He added that the measure would encourage deeper control of VOC emissions throughout production processes and help reduce pollution.

VOCs are a key source of fine particulate matter (PM2.5) and ozone formation, contributing to atmospheric environmental issues such as smog and photochemical smog. Currently, more than 300 types of VOCs can be detected.

When the Environmental Protection Tax Law was enacted in 2016, it covered only 18 types of VOCs, including benzene and formaldehyde.

In recent years, China has gradually improved standards for VOC emissions, product standards and emissions accounting methods, paving the way for bringing all VOC emissions into the environmental tax scope.

The pilot program will initially cover eight industries, including printing, chemical raw materials and chemical manufacturing, which collectively account for more than 70 percent of industrial VOC emissions.

The tax will range from 8 yuan (about 1.18 U.S. dollars) to 12 yuan per pollution equivalent, with provincial-level governments setting applicable rates based on local environmental conditions, emission levels and development goals, according to the implementation rules.

The rules also provide tax incentives for companies with strong environmental performance. Taxpayers rated Grade A and Grade B for air quality performance in key industries will pay 50 percent and 75 percent of the tax otherwise due, respectively.

The tax would increase the cost of pollution, encouraging companies to strengthen emissions control and accelerate green upgrading, said Lei Yu, head of the Institute of Atmospheric Environment under the Chinese Academy of Environmental Planning.