Core Viewpoint - The "simplified tax system" at Hainan Free Trade Port aims to enhance its competitive advantage by consolidating various taxes into a sales tax, which is expected to attract capital and improve the tax revenue structure [1][3][4]. Tax System Reform - The "simplified tax system" will merge multiple taxes, including VAT and consumption tax, into a single sales tax, significantly reducing the issue of double taxation [3][6]. - The reform is anticipated to lead to a notable price differentiation for goods in Hainan, with manufacturing firms benefiting from reduced costs due to tax exemptions on imports, while local small businesses may face price increases [3][10]. International Comparison - Many developed free trade ports, such as Hong Kong, utilize simple tax systems, which Hainan aims to emulate to enhance its tax competitiveness and attract investment [4][8]. - International examples, like Singapore's 7% Goods and Services Tax (GST), provide valuable insights for Hainan's tax reform [8]. Tax Design Challenges - The core goal of the reform is to create a simple and scientifically structured tax system with lower tax burdens, but challenges remain, particularly in designing the sales tax [6][10]. - Two main design approaches for the sales tax are proposed: "broad tax base with low rates" or "narrow tax base with high rates," with experts suggesting that the former may better suit Hainan's goals [6][7]. Implementation and Challenges - The Ministry of Finance is progressing with the sales tax reform, emphasizing a gradual and orderly approach, but full implementation may not occur within the current five-year plan due to complexities [10][11]. - The reform may simplify the tax system but could also complicate tax administration, especially in managing a dispersed taxpayer base and preventing tax evasion [11].

Core Viewpoint - The "Simplified Tax System" at the core of the special tax arrangements in Hainan Free Trade Port will enhance its unique competitive advantages after the port's closure operation begins [1] Tax System Reform - The "Simplified Tax System" aims to consolidate various taxes into a sales tax, which will be levied at the retail stage for goods and services, thereby reshaping the tax structure and enhancing tax competitiveness to attract capital [2][4] - The reform is expected to significantly reduce double taxation, particularly benefiting manufacturing enterprises reliant on imported raw materials, while local small businesses may face price increases due to tax burdens at the sales stage [4][5] International Comparison - Many mature free trade ports, such as Hong Kong, utilize simple tax systems, which have proven effective in attracting investment and enhancing tax competitiveness [5] Tax Design Challenges - The core goal of the "Simplified Tax System" is to create a scientifically simple tax structure with lower tax burdens, but challenges remain, particularly in designing the sales tax [7][10] - Two main design approaches for the sales tax are proposed: "broad tax base with low rates" or "narrow tax base with high rates," with experts suggesting that the former may better suit Hainan's goals of reducing indirect tax ratios and overall tax burdens [7][8] Implementation Challenges - The reform is currently in the research and discussion phase, facing complexities in fiscal revenue distribution and tax coordination between Hainan and other provinces [11][12] - The implementation of the "Simplified Tax System" may lead to increased challenges in tax administration, particularly in managing a dispersed taxpayer base in the retail sector [12] Price Competitiveness and Arbitrage Risks - The introduction of "zero tariff" policies and the "Simplified Tax System" is expected to enhance the competitiveness of domestic goods, but may also widen the price gap between domestic and foreign products, potentially leading to arbitrage activities [13]