Hua Zheshao Shen Ming Chen Baiyan Shao Yijie Liu Haoyuan Luo Sangzaxi (Nanjing Audit University, School of Finance and Audit, Jiangsu Nanjing 210023) Abstract: Green taxation has played a significant role in China's economic development, promoting enterprise transformation and upgrading, and building a solid protection wall for green mountains and clear waters. Based on defining the green taxation system, this paper analyzes the mechanism of green taxation in driving enterprise innovation and transformation, identifies the challenges in its implementation, and proposes corresponding solutions. The research shows that green taxation encourages enterprises to engage in green technology innovation and industrial structure optimization by increasing pollution costs and providing tax incentives, thereby promoting enterprises to transition towards green and low-carbon development. Given the significant variations in the impact of green taxation across different regions, industries, and enterprise types, policy design must fully consider these heterogeneities to achieve sustainable economic, social, and environmental development. This study provides references for optimizing green taxation to better guide and regulate enterprises, as well as for improving institutional design. Keywords: green taxation; enterprise innovation; industrial upgrading Fund Project: National College Student Innovation and Entrepreneurship Competition Project "Research on the Effects of Green Taxation in Promoting Enterprise Technological Innovation and Transformation—A Case Study of Resource-Based Enterprises" (No.: 202413994002Z)