China refines duty-free, tax refund policies for better consumption experience

Estimated reading time: 5 minutes

By Wang Guan, Yan Bingjie

Downtown duty-free shops refer to those approved by China's State Council to operate within Chinese urban areas and sell duty-free goods to travelers set to leave the country. According to a staff member with the shop of Sinopharm CNSC, this transformation will provide departing tourists with a wider range of shopping options.

Duty-free shops are more appealing than franchises because they sell products at lower prices. Downtown duty-free shops, in particular, offer consumers imported goods that are exempt from customs duties, import value-added tax (VAT) and consumption tax, as well as goods of Chinese brands that are eligible for VAT refunds or exemptions, all at significantly discounted prices. Unlike airport duty-free shops, they are more conveniently located and offer flexible shopping hours.

According to the interim measures for the administration of duty-free shops in cities issued by Chinese authorities, a duty-free store will be opened in each of China's eight cities, namely Guangzhou, Chengdu, Shenzhen, Tianjin, Wuhan, Xi'an, Changsha and Fuzhou, starting Oct. 1 this year.

Another 13 foreign exchange goods duty-free shops shall be transformed into downtown duty-free shops within 3 months from the commencement of the new rules, and shall begin to operate only after passing the customs inspection.

The rules also stipulated that duty-free shops in cities are for travelers who will be departing the country by air or international cruise within 60 days. These travelers can purchase at these stores without a shopping limit, but they must comply with Chinese customs regulations that the quantity of items carried by travelers entering and exiting the country shall be for personal use and of a reasonable quantity.

"Downtown duty-free shops will bring new development opportunities for tourism and retail industries. They offer a more convenient shopping experience and are attractive to tourists, thereby driving the development of related industrial chains and creating new growth drivers," said Ye Yindan, a researcher with the Bank of China's research institute.

As more countries are included in China's visa-free transit policy, "China travel" is becoming increasingly popular, leading to a growing consumption enthusiasm of overseas tourists.

Apart from downtown duty-free shops, the departure tax refund policy is also an important tax incentive measure introduced by China to facilitate overseas tourists in response to international trends.

Departure tax refund refers to the partial refund of indirect taxes to a foreign tourist who has purchased goods in the destination country. In recent years, the Chinese tax authorities have continuously improved departure tax refund services to further enhance the convenience for overseas tourists. So far, more than 20 provinces, autonomous regions, municipalities directly under China's central government, and cities under separate state planning in China, have introduced departure tax refund policies.

Moreover, Beijing, Shanghai, Sichuan, and other regions provide the instant departure tax refund service, which allows overseas travelers to get an instant tax refund from the merchants after shopping.

After shopping at stores that provide the service, eligible overseas travelers can be rebated with the equivalent amount of RMB at the specific tax refund point. The service can fully meet the practical needs of overseas travelers and effectively improves their consumption experience.

Since the beginning of this year, the departure tax refund business in Beijing has maintained a high growth trend. As of now, the number of overseas travelers applying for tax refund has increased by 2.1 times from a year ago, and the sales of tax refundable goods by 1.5 times year on year.

At a service counter at the SKP Beijing department store, a South Korean tourist and his friends were having their tax refunded. According to Ma Tao, tax manager of the department store, hundreds of shops in the mall can handle departure tax refund business, which covers a variety of daily necessities such as clothing, shoes, bags, cosmetics, and watches.

In addition to fashionable items, specialty products by time-honored Chinese brands are also favored by many foreign tourists.

"Thanks to the development of China's tourism industry and our increasing overseas influence, we are dealing with more departure tax refund businesses than before, with the majority of tax refundable goods being traditional Chinese medicine (TCM) and medicinal herbs," said Zhang Rui, deputy manager with a drug store of Tong Ren Tang, a TCM manufacturer established in the 17th century, in Dashilan commercial area, Beijing.

An official with Shanghai Municipal Tax Service of China's State Taxation Administration noted that they will continue improving the distribution of stores providing departure tax refund service and focus on inbound consumption scenarios, so as to make tax refund more accessible and promote the high-quality development of tax-free and refundable economy.