SCIO press conference on development of Hainan Free Trade Port

21st Century Business Herald:

The pilot duty-free policy for domestic sales of processed value-added goods has been in place for more than four years. How does this newly introduced policy differ from and improve upon the existing pilot policy? Thank you.

Wang Lingjun:

Thank you for your question. This is an important issue concerning customs policy within the context of Hainan FTP development. The duty-free policy for domestic sales of processed value-added goods refers to the exemption of import duties on specific products from Hainan FTP when they enter the mainland. To qualify, products must be manufactured by encouraged industries within the port and contain imported materials that have a value added of 30% or more within the port. Import value-added tax and consumption tax are levied according to regulations. The policy was first piloted in the Yangpu Bonded Port Area in July 2021. Over the past four years, the pilot policy has been optimized and adjusted multiple times, expanding its scope from just the 2.3-square-kilometer Yangpu Bonded Port Area to cover the entire Hainan FTP. Based on an in-depth summary of the pilot experience, the GACC, in collaboration with relevant departments and Hainan province, has further optimized the value-added duty-free policy for the island-wide special customs operations. This has resulted in the formulation of the Interim Measures for the Implementation of Customs Tax Collection and Administration on Domestic Sales of Value-added Goods Processed in Hainan Free Trade Port of the People's Republic of China. Compared with the existing pilot policy, the duty-free policy for processing value-added goods after the launch of the operation is primarily optimized in the following aspects:

First, the threshold for enterprises to enjoy benefits has been lowered by eliminating the restriction that primary business income from encouraged industries must account for more than 60% of an enterprise's total income.

Second, the scope of eligible imported materials has been expanded. The policy scope has been extended to include tariff-exempt imported goods, building upon the initial pilot that only permitted bonded goods.

Third, the calculation formula for value-added processing has been optimized. The value of goods produced in Hainan FTP is now included in the value-added portion, making it easier for enterprises to reach the 30% value-added threshold.

Fourth, the application scope for cumulative value-added processing has been expanded. When bonded goods are processed and manufactured by different upstream and downstream enterprises, each enterprise's value-added portions can be calculated cumulatively, encouraging enterprises to expand and extend their industrial chains.

Overall, since the introduction of the island-wide special customs operations, the processing value-added policy will lower eligibility thresholds and expand the range of beneficiaries. This will better serve the production needs of enterprises on the island and support the cultivation and development of industrial chains and clusters. Thank you.