December 2 saw Hainan Qilu Pharmaceutical and Hainan Well Lead Medical, two companies based in the Haikou National High-tech Industrial Development Zone, become the first to enjoy the processing value-added tax (VAT) policy benefit outside Hainan’s special customs-supervised areas.

Aerial photo taken on June 17 shows part of the Haikou National High-Tech Zone, one of the eleven key industrial parks built to boost the development of the Hainan Free Trade Port. (Photo: Xinhua)

The processing value-added tax (VAT) policy was proposed in China’s master plan for the Hainan Free Trade Port in June 2020, with the intent to waive import tariffs for a number of enterprises in highly-needed industries. Under the policy, processing enterprises with no imported raw materials, or those with imported materials that are processed to add a value of 30 percent or more to the final product in the Hainan Free Trade Port can sell these products in the rest of the country without incurring import tariffs. However, the companies still need to pay import value-added tax (VAT) and consumption tax.

In response to the master plan, on July 2021 the exemption policy was first implemented in the three special customs-supervised areas of the tropical province — the Yangpu Free Trade Zone, then the Haikou Free Trade Zone and the Haikou Airport Free Trade Zone. As Hainan continues to make progress in trial operations before the formal island-wide independent customs operations come into effect in 2025, the policy has now been broadened to include businesses located in the province’s eleven key industrial parks.

To assist companies wanting to enjoy the benefits of the policy, a special working group has been established by the local authorities to study and formulate related regulations & procedures, as well as offer detailed policy guidance to interested businesses.

With this assistance, more than a dozen companies have been approved as Authorized Economic Operators (AEOs) so far this year, which qualifies them to take advantage of the policy. Meanwhile, the measure has saved local companies around 250 million yuan (about $35.92 million) in import tariffs on processed goods worth of about 2.72 billion yuan (about $390 million) as of October 2022.