Chinese decision-makers tend to explore new policies step by step and it also takes time for Hainan to improve the shopping environment and strengthen coordination among customs and the business community, said Xia Feng, Director of the Hainan Research Institute under the Haikou-based China Institute for Reform and Development (CIRD).

"Learning from the experiences of South Korea's Jeju Island and Japan's Okinawa, we can provide tax rebates for domestic tourists with limitations," said Chi Fulin, Executive Director of the CIRD.

For example, domestic travelers can be allowed to receive refunds for their first three visits within one year with consumption limited to 5,000 yuan ($752) each time, he said.

The Orient Securities Co. Ltd., in a recent report, predicted that annual duty-sales of Hainan, if made available for all Chinese, could reach 20 billion yuan ($3 billion) within a few years, around half of these sales in Hong Kong.

Most importantly, the outlook is promising since Chinese tourists increasingly gain buying power, said the report. The Shilia Duty Free Shop at Jeju Island said 55 percent of its customers now come from China, up from 50 percent in early 2009. Their per-capita consumption averages at $200, compared with $130 for the Japanese, it said.

Concerted efforts

As Hainan gears up to become an international tourist destination, the tax incentive is actually not a panacea—the island still has a lot to do to fulfill its ambitions.

"It's unreasonable to pin all the hopes on duty-free shopping," said Wang Yan, Dean of the Department of Tourism Management at the Beijing Jiaotong University. "The transport bottleneck, for instance, needs to be removed."

Meanwhile, an urgent task is to improve tourism services and work on the island's image, said Wang, citing complaints of tourists being overcharged or forced to buy expensive and shoddy souvenirs.

Chi said it is necessary to hammer out a blueprint for the island to promote travel shopping.

Another concern is that the property boom is forcing up rent rates and hotel charges on the island, pouring cold water on traveler interest. Worse still, worries abounded that reckless property expansion may impact the natural environment of the island.

There is growing need to keep control over the real estate sector and prevent damage to the ecological system, said Cai Rentan, Deputy Secretary General of the Hainan Province Real Estate Association.

Over the next 10 years, the industry should focus more on the tourism-related properties like hotels and recreational resorts, he said.

Duty Refund Requirements in Hainan

- Purchases must be made at designated stores; goods purchased must be specially designated items; the total purchase value must reach the predetermined amount—currently 800 yuan ($120); and the application form for tax refunds and other certificates must be obtained.

- The purchased goods can neither be used nor consumed prior to completing customs procedures at the time of departure.

- The time between departure and the purchase of goods must not exceed 90 days.

- The purchaser must check the goods or bring them with him or her when leaving the country (The goods may not be shipped separately).

- The purchaser must sign the tax refund application forms when bringing the goods through customs.

- Taxes can only be refunded at designated agencies.

(Source: Ministry of Finance)