HAIKOU - Overseas tourists to Hainan province will be able to reclaim taxes paid on purchases, including clothes and cosmetics, from New Year's Day as part of plans to turn the tropical island into an international travel and shopping paradise.

The policy, approved by the State Council, applies to travelers from foreign countries and Taiwan, Hong Kong and Macao, who buy goods worth more than 800 yuan ($120) in one day at a single department store in Hainan. They can then apply for a tax rebate of 11 percent of the total price of their purchases, effective from Jan 1.

Hainan provincial government will name at least two department stores as pilot shops on Jan 1.

"The policy, in essence, is to provide overseas tourists coming to Hainan with goods at a low price, to stimulate consumption and drive tourism, the pillar industry of our province," Lu Yong, vice-director at the island's finance department, said on Monday.

Overseas tourists can obtain a value added tax refund at the island's Haikou Meilan International Airport or the Sanya Phoenix International Airport before leaving China.

The policy covers the purchase of 21 categories of goods, including garments, footwear, headwear, electronic appliances, and cosmetics. Purchases in renminbi and other currencies are covered.

The policy stems from a provincial government proposal in 2009. The State Council backed it and announced plans to develop Hainan into an international resort island and China's second largest international shopping destination, after Hong Kong.

According to the State Council, Hainan will be a destination reflecting global standards for traveling and shopping services, management and human resources by 2020.

"With the support of the new policy, tourist shopping will account for 40 percent of all revenue spent by travelers in Hainan province next year, up from the current 20 percent," Wang Keqiang, deputy director of the island's commerce department, told China Daily.

Hainan is China's largest special economic zone. In the first 11 months of 2010, 596,600 overseas visitors traveled to the island, spending 1.94 billion yuan.

Nationwide, 122 million trips by overseas travelers contributed $31.6 billion to the economy.

"The implementation of the new policy is one part of the central government's development plans for Hainan," Lu said, adding that innovation is the key to promoting the island as a globally famous resort.

Lu said the policy will also help improve the country's system of refunding taxes on exported goods.

The tax-refund policy, which started in the 1980s, has been implemented in more than 50 countries and regions worldwide including the European Union, Australia and Japan.

"I'm glad that China offers us such a shopping experience here and I'm sure the new policy will make Hainan more attractive," Paul Iron, an English tourist at Haikou, said.

Apart from the refund policy, the opening of a duty free shop tailoring to Chinese consumers is also under discussion. But Hainan's finance department said mainland tourists will have to wait until the tax refund policy is implemented.

In another development, a bullet train linking Haikou and Sanya will be operational in January. The trip will take 90 minutes, a third of the time by road.