Hainan Island Tax-Free Program To Begin On April 20
The pilot duty-free program designed to boost high-end shopping on China’s southernmost province, Hainan, is set to begin this Wednesday, April 20. As previously covered by Jing Daily, this program will allow domestic Chinese tourists to claim tax refunds on imported luxury goods purchased in Hainan up to a value of 5,000 yuan (US$762), with reduced tax rates for purchases exceeding 5,000 yuan. While the government plans to gradually extend this program to all of Hainan island, it will begin with the high-end resort magnet Sanya, the second most populous city in Hainan. Occasionally referred to as “the Riviera of China,” Sanya regularly plays host to events like the luxury showcase Hainan Rendez-Vous, and was most recently the backdrop for the 2011 BRICS summit.
Having established Sanya as one of the top tourist destinations in southern China, the provincial government now hopes the city can rival Hong Kong or Macau as a shopping destination for mainland Chinese travelers. This week, People’s Daily looked into the potential savings that tourist-shoppers could see as a result of Sanya’s new tax-free scheme. The newspaper found that luxury goods will be significantly cheaper than in Beijing and, in some cases, nearly at parity with Hong Kong prices. A Longines watch, for example, that sells for 19,992 yuan (US$3,062) in Hong Kong goes for 19,980 yuan ($3,060) in Sanya. Similarly, a 100 mL bottle of Dior perfume that sells for 980 yuan ($150) in Beijing will come to 785 yuan ($120) in Sanya.
According to Teng Rui, deputy general manager of the Sanya Duty Free Group, the pilot tax exemption program will promote the development of Sanya as a major domestic tourism market. As Rui and other tourism officials have said recently, they hope to transition Hainan’s tourism offerings from “3S” (sun, sand, sea) to “4S” (sun, sand, sea, shopping). However, exact details of the new tax exemption program have been scarce. Luckily, Teng Rui addressed several of these questions in an interview with People’s Daily (translation by Jing Daily team):
First, the program will use a new payment model at duty-free stores. When purchasing items, tourists need to show valid ID, accurate information on their return flights and information about their previous duty-free purchases. After they’ve paid, the tourists won’t get their items immediately, as they need to be wrapped up and transported to Sanya Phoenix International Airport, where the tourists can pick them up. In order to ensure the items arrive at the airport on time, tourists should finish their shopping at least six hours before their departure flight, and those tourists departing from Haikou should finish one day before departure.
Second, the tax exemption program only applies to tourists 18 years of age or older, who will fly to other domestic destinations in China and who have purchased goods worth no more than 5,000 yuan each. Although the program is mainly designed to attract tourists from other provinces, it also applies to residents of Hainan. Each eligible non-resident tourists can claim tax rebates twice a year, and Hainan residents can enjoy the privilege once a year.
Third, if they pay the full import tax, tourists can buy items priced at more than 5,000 yuan. Usually, the import tax rate is far lower than the comprehensive tax rate (which includes customs duties, import VAT and consumption tax) for the same item. However, import tax rates vary by category, and usually run between 10-15 percent. Jewelry, handicrafts and similar items tend to have a 10 percent tax rate, while wine, cigarettes, perfume and cosmetics have a stiffer 50 percent tax rate.
While Hainan’s new tax exemption policy is a step in the right direction, it’ll likely be a while until the island can seriously rival Hong Kong as a duty-free shopping destination. As a free-port, Hong Kong is saturated with duty-free items from a range of categories. While Sanya is rich in terms of tourism resources, most tourists still see the island as a tropical getaway, focusing on “green” tourism rather than hitting the mall. Additionally, as the pilot scheme is centered around duty-free stores, tourists will have few choices on where to shop.
According to Chinese-language reports, Sanya won’t only have competition from Hong Kong but also from Shanghai. As the Shanghai Municipal Tourism Administration announced this week, it has applied for permission from the central government in Beijing to build duty-free zones in Shanghai’s Pudong district, the city’s airports and the forthcoming Shanghai Disneyland.