Lowering taxes and raising duty-free quotas, China has taken concrete steps in line with a master plan released on June 1 to build the southern island province of Hainan into a high-level free trade port, showcasing the country's commitment towards both post-pandemic recovery and long-term economic growth.
In the latest of these moves, the Ministry of Finance and the State Taxation Administration lowered the income tax rate to 15 per cent for eligible companies registered in Hainan, and exempted income tax on proceeds of new, outbound direct investment for companies in tourism, modern services, and tech-intensive sectors.
As a trailblazing example of institutional innovation needed at the Hainan free trade port, the new tax plan is key to cultivating a business environment for the country's high-level opening-up, said Li Xuhong, a professor at the Beijing National Accounting Institute.
To be eligible for the 15-per cent tax rate, companies have to make sure that they run their businesses from the island province, which Li said will prevent companies from flocking into the free trade port only to pay lower taxes.
The two central departments also capped the personal income tax rate at 15 per cent for individuals with high-level and in-demand expertise working in Hainan, a move that analysts say will help draw a much-desired, talented workforce to Hainan.
Chinese authorities announced on Monday that they will increase Hainan's annual tax-free shopping quota to 100,000 yuan (about US$14,142) per person each year from the current 30,000 yuan for travellers. They will also expand the categories of duty-free goods, fuelling market expectations for the consumption of luxuries.
Industry insiders are particularly encouraged by the removal of the current tax-free limit of 8,000 yuan for a single product, which in effect extends the duty-free cap for an item to 100,000 yuan.
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