PURPOSE

This paper sets out the proposal to allow the sale of duty-free goods to arrivals passengers at Lo Wu Railway Station and the airport.

BACKGROUND AND ARGUMENTS

2. The Dutiable Commodities Ordinance (Cap. 109) exempts, among other things, certain dutiable goods imported into Hong Kong by passengers of ships, aircraft, trains or vehicles for their own use. The present levels of these duty-free allowances are set out in the Annex.

3. Recently, the Kowloon-Canton Railway Corporation and the Airport Authority have advised that the duty-free concessions in the departure areas of Lo Wu Railway Station and the airport respectively have experienced a drastic drop in sales due to the present economic downturn. They have suggested that allowing arrivals duty-free shopping could help improve the business environment as some of the incoming passengers who intend to purchase duty-free goods may prefer to do so upon their arrival in Hong Kong. The proposal would also be more convenient for airline passengers as they would not need to carry the goods on board the aircraft.

OUR ASSESSMENT

4. We estimate that about 20%-30% of arrivals passengers carry with them duty-free goods with an estimated value of about $1,200 million a year. Since at present we do not allow the sale of duty-free goods on arrival, all such goods are bought outside Hong Kong. Given the quite significant value of goods brought in, we have considered whether we should allow the sale of duty-free goods on arrival in order that such purchasing may originate in Hong Kong. Our major considerations are set out in the paragraphs below.

Insignificant Revenue Implications

5. We believe that the sale of duty-free goods on arrival would largely replace the purchase of such goods from equivalent outlets outside Hong Kong. Provided the quantities and restrictions of duty-free concessions are not adjusted and they apply to the total quantities of duty-free goods a person carries when he arrives at the Immigration clearance point, there should not be any revenue implications in this respect. As for those who purchase duty-free goods on arrival purely as a result of the additional convenience provided, any revenue loss is notional as the duty-free concessions already apply to them. Hence, there should not be any overall revenue implications arising from the sale of duty-free goods on arrival.

Effect on Sale of Duty-paid Goods in Hong Kong

6. As noted above, the proposal can encourage purchase of duty-free goods on arrival in Hong Kong because of the convenience offered. Allowing duty-free shopping on arrival should mainly attract those who would otherwise have bought such goods before arriving at Hong Kong, and it should not significantly affect the sale of similar duty-paid goods in Hong Kong.

International Practice

7. Providing duty-free concessions is an international practice. In recent years, in addition to allowing duty-free sales at departure, many airports (e.g. in Australia, Singapore, India, Indonesia, New Zealand and Thailand) also allow the sale of duty-free goods on arrival. In this respect, Hong Kong should seek to remain competitive.

Operational Considerations

8. The major operational considerations are -

1. crowd control in Lo Wu Railway Station, as passenger flow could be interrupted by those who queue up for the purchase of duty-free goods, particularly at busy times; and
   
   
2. the possibility of abuse of the allowances.
   
   On (a), subject to the approval of the proposal, the relevant Government departments will work out with the respective operators suitable arrangements for operating the concessions and will prepare alternative arrangements for peak seasons. We will aim to work out an arrangement which would least affect passenger flow in the area and would not compromise customs and immigration controls. On (b), Customs would conduct more frequent checking of passengers, airport and railway staff.

FINANCIAL IMPLICATIONS

9. As the current levels of duty-free allowances would be unaffected and the total quantities of such goods in possession by arrival passengers have to be within these limits, the proposal would not have any revenue implications. The resources involved in conducting more frequent checking would not be significant and would be absorbed by the Customs & Excise Department. The establishment of concessions in the arrival areas, which are bonded warehouses, requires the issue of licences, attendance of Customs officers etc. Fees for the provision of such services will be charged on a full-cost recovery basis.

ECONOMIC IMPLICATIONS

10. Setting up duty-free concessions in the arrival areas can be expected to induce some travellers, who might otherwise buy duty-free goods outside Hong Kong, to buy the goods in Hong Kong. The economic benefits to Hong Kong will be expressed in terms of value added or income to be generated from the increased retail, wholesale and import/export activities in the duty-free concessions. It is not certain how much of the $1,200 million worth of duty-free goods annually brought into Hong Kong by arrival passengers will be bought in our arrival concessions. Assuming 30% of these goods will in future be bought in the arrival concessions, it is estimated that the value-added directly generated in the retail, wholesale and import/export trades will amount to about $80 million each year.

RECOMMENDATION

11. We recommend that the sale of duty-free goods should be allowed on arrival, subject to the institution of sufficient control measures. To implement the proposal, legislation is required. Subject to the views of the Panel, we will prepare the necessary legislation which will be submitted to the Legislative Council for consideration in due course. Although we have not received a similar request from the operators of the Marine Ferry Terminals, the effect of such legislation would also make it possible, subject to operational consideration, for arriving ferry passengers to make duty-free purchases.


Finance Bureau
FIN CR 3/2306/99
May 1999

Annex

A passenger entering Hong Kong is allowed to bring in free of duty, for his own use, the following quantities of dutiable commodities -

1. Visitor
   
   
   1. One litre of wine or spirit; and
      
      
   2. 200 cigarettes or 50 cigars or 250 grams of smokers' tobacco.
   
   
2. Local Resident (Holder of Hong Kong identity card)
   
   
   1. One litre of still wine; and
      
      
   2. 100 cigarettes or 25 cigars or 125 grams of smokers' tobacco.

Returning local residents who have spent less than 24 hours outside Hong Kong and persons under the age of eighteen do not qualify for duty-free concessions.