After removing tariffs, Hainan, China’s biggest duty-free market, is planning to remove VAT and excise tax for imported wine and spirits in a bold move to further boost its attractiveness for tourists, as wealthy Chinese shoppers shift their spending back to home.
Yao Lei, the first-level inspector of Hainan provincial department of commerce, said: “In the future, commodities that entered Hainan through customs will be exempted from tariffs, VAT and excise tax. Currently alcoholic beverage is a heavily levied commodity subject to excise tax, and will be levied with VAT if any imported procedures are involved. But in the future, imported drinks such as whiskey and brandy will be exempted from tariffs, VAT and excise tax when entering Hainan.”
However, the official did not specify a timeline for the removal. Currently, China imposes 10% excise tax and 13% VAT on imported wines in addition to 14% import tariffs; while whisky is subject to 20% excise tax, 13% VAT and 5% import tariff.
This essentially means that imported wines, brandy and whiskies in the future sold in duty-free Hainan province would be exempted from all taxes, and it would make the province more competitive to wealthy domestic shoppers who used to jet to Hong Kong or abroad for luxury shopping.
Untapped Potential for Drinks
Hainan, a subtropical island in the South China sea, has led the way for China’s duty-free shopping for domestic tourists for many years and its position during the pandemic was strengthened as wealthy Chinese shift their spending at home rather than abroad.
Known as “China’s Hawaii”, the island province’s beverage consumption has been rising gradually in recent years. Though alcohol consumption is still dominated by Chinese Baijiu, which accounts for nearly 60% of the Hainan’s RMB 5-6 billion annual alcoholic drinks sales, wine and beer are expanding their share to about 30%.
The provincial capital Haikou for instance is the main market for alcoholic beverages, with annual sales topping RMB 3 billion (US$435.6 million).
The policy is expected to lure in more domestic and foreign tourists visiting the island even after China removed all Covid restrictions. Hainan attracted over 60 million tourists last year, where duty-free shopping from luxury goods to fine wines and spirits is an essential part of their trip.
This means the province still has huge potential for alcoholic beverages consumption, according to Hainan provincial department of tourism and culture. At the moment, the capacity of Hainan alcohol market is relatively low, compared with other leading alcoholic consumption provinces in the country. The province’s drinks consumption only accounts for 9.7% of the annual alcohol consumption in Henan province, a major Baijiu-loving alcohol consumption province.
Up to now, there are over 300 authorized alcoholic drinks brands in the duty free market of Hainan. According to the Announcement on the Duty-free Shopping Policy for Hainan Outlying Islands Tourists published on June 29, 2022, imported wine and spirits is included in the newly authorized categories, and each person can purchase 1500 ml of duty-free alcoholic beverages each time or two bottles of wines in standard size.
Industry insiders pointed out that the current Hainan market capacity is relatively weak, mainly limited by local consumption capacity and alcohol consumption habits. Thus, with the implementation of the tax policy, more imported wine and spirits brands will choose to set up business branches in Hainan, which will further promote the alcohol market development in Hainan.
