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 ...

August 4, 2025 01:35 AM GMT China Financials | Asia Pacific Restored VAT on government and financial bonds to modestly support yields Key Takeaways We estimate the VAT from financial bonds will increase government income by Rmb40-50bn annually, but the effects will take to time to show as only bonds issued after 8 Aug will be affected. While the resumed VAT will push up financing costs for firms involved in financial bond issuance, the bulk of the cost will be born by policy banks as commercial banks only a ...