China to Resume Tax on Bond Income

China will resume taxing interest income on bonds issued by the government and financial institutions starting August 8, the Finance Ministry said, ending a decades-long exemption. The value-added tax (VAT) will apply to bonds sold by central and local governments, as well as financial institutions, though existing bonds and their reopenings will remain exempt. As of end-June, nearly 70% of China’s outstanding bonds were issued by these entities, meaning the policy could significantly impact market dynamics. While the tax may help Beijing boost fiscal revenue and fund growth initiatives, it risks raising borrowing costs at a time when the economy is still grappling with weakness and uncertainty.