Hainan to Let Travelers Avoid Duties

Starting April 20, mainland travelers will be able to buy duty-free goods in Hainan as long as they leave the island by air and return to the mainland, the Ministry of Finance announced on March 23, 2011.

The policy will prevent mainland visitors from paying various types of taxes on up to 5,000 yuan ($762) worth of imported goods bought at selected duty-free stores on the tropical island province in South China.

With the change in place, the prices of certain goods in Hainan are expected to fall by 15 percent to 35 percent for Chinese travelers.

Permission to buy goods duty-free in Hainan had been extended to foreign and non-mainland travelers before, but never to mainland visitors.

The goal of the policy is to make Hainan into a tropical tourist destination by 2020. The tourism industry is then expected to contribute 12 percent of the island's gross domestic product.

To that end, the policy has been designed to be generous. But there are restrictions.

Only travelers who are 18 or older will avoid paying import duties. And mainland visitors to Hainan can only buy goods duty-free at the shop twice a year, while island residents can only once a year.

The new policy allows 18 types of goods to be bought duty-free. They include jewelries, artworks, wristwatches, perfumes, cosmetics, pens, glasses, scarves, neckties, wool fabrics, cotton goods, clothing, belts, bags, small leather goods, candies and sporting goods.

The new policy comes after China adopted a tax-refund program on Jan 1. That program made foreign tourists, as well as citizens from Hong Kong, Macao and Taiwan who have lived in the Chinese mainland for no more than 183 consecutive days, able to obtain a rebate of 11 percent of the taxes paid on certain purchases, Xinhua News Agency reported.

Hainan's tourism officials have conceded that the policy has not produced the expected results.

Undeterred, officials have pinned high hopes on the new policy, especially since it is aimed at attracting mainland tourists, who make up a majority of those who travel to Hainan.

According to figures provided by the Sanya Tourism Industry Development Bureau, 96 percent of the tourists who visit Sanya, the most popular destination on the island, hail from the mainland.

The new policy is expected to attract more tourists to the island and boost consumption, said Lu Yong, deputy director of the Hainan Provincial Department of Finance.

Lu acknowledged that critics have questioned the reason for the 5,000-yuan limit set on duty-free purchases and the limit on the number of times tourists can take advantage of the policy. In answer, Lu said officials have carefully studied Chinese travelers and designed a program tailored to their shopping habits.

And compared with the duty-free policies in effect in the Republic of Korea's Jeju island and Japan's Okinawa, Hainan's policy has advantages.

He said Okinawa allows travelers to buy no more than 16,000 yuan worth of goods duty-free, more than three times Hainan's limit.

"But we have better a deduction rate (than Okinawa), which ranges from 15 to 35 percent," he said. "Okinawa only saves you around 5 percent."

Jeju island only allows travelers to buy up to 2,300 yuan worth of goods duty-free each time, far less than Hainan, he said.

Tourists as well as duty-free shops in Hainan are happy about the news.

A 7,000-square-meter duty-free store in downtown Sanya, which belongs to the only Stated-owned duty-free group in China - the China Duty Free Group Co Ltd - has been eagerly awaiting such a policy.

"We receive many inquiries every day from domestic shoppers," said a staff member surnamed Ke, who works at the store's luxury watch booth.

"We've been waiting for this moment to come as eagerly as they have."

The China Duty Free Group also invested in a 250,000-sq-m shopping area in Haitang Bay, about 30 kilometers east of Sanya.

"Another duty-free shopping venue will be built soon in Haikou as well," said Chang Zhen, of the group's Beijing office.

Zhou Jun, a spokeswoman for the Korea Tourism Organization's Shanghai office, said important differences exist between the duty-free shops found in various places. Those in Hainan, for instance, are State-owned enterprises, while those in the Jeju island are managed by private companies and operate in a fairly free market.

"The fact that the market is flexible benefits travelers coming here," Zhou said.