context: Beijing reinstates tax on ‘safe assets’ as the Ministry of Finance and the State Taxation Administration announced that interest on newly issued government, local government and financial bonds will again be subject to value-added tax from 8 Aug 2025. Sun Lijian 孙立坚 Dongfang Fudan Development Institute Finance Research Center director warns the move is designed to pop a bond bubble and steer funds towards the private sector.
Sun Lijian 孙立坚 Dongfang Fudan Development Institute Finance Research Center director points out that taxing interest income will break investors’ over-reliance on government-backed ‘safe assets’ and revitalise the PRC financial system.
He argues that the exemption, introduced in 2016, has outlived its purpose now that the PRC bond market is the world’s second largest; maintaining it skews resource allocation, inflates prices and traps liquidity. State Taxation Administration guidance issued 1 August clarifies that most small savers will stay exempt, cushioning consumption
- tax scope and rates
- applies to interest from government, local government and financial bonds issued on or after 8 Aug 2025
- banks pay 6 percent, asset-management products 3 percent
- existing bonds keep exemption until maturity
- treatment of individuals
- interest income below C¥100,000 per month exempt until 31 Dec 2027
- relief targets middle- and low-income savers to support consumption
- policy objectives highlighted by Sun
- curb ‘safe asset’ price bubble and redirect funds to innovative firms
- restore market-based rate formation and improve risk sharing
- expand fiscal space without over-reliance on deficits
- expected market impacts
- yields on new bonds may climb by six–ten basis points according to sell-side estimates
- brokerages face limited earnings hit, adding 1–2 percent to revenue costs
- banks likely rebalance towards equities, boosting liquidity
- broader reform agenda
- aims to fix bond-market structure and avert liquidity trap
- aligns with common prosperity by shifting tax burden to high-net-worth investors