CITI'S TAKE China's decision to reinstate VAT on interest income from government and financial bonds issued starting 8 August marks a significant shift in fixed income taxation. We believe the surprise move was aimed to mainly improve the bond pricing mechanism, but perhaps also to collect more revenue amid fiscal pressures. We estimate the additional VAT revenue at ~RMB4.2bn this year and ~RMB38.7bn in 2026E, limited amounts relative to the 2025 budget revenue of RMB21.9tr. The cost for government finance ...