, China
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Chinese banks to see only mild impact from tax on bond interest income

The policy is also likely to increase the financing cost of banks for issuing new bonds.

China’s plan to reinstate tax on bond interest income is expected to have a mild impact for local banks.

China will reinstate a 6% value-added tax on interest income from treasury bills, local government bonds, and financial institution notes issued after 8 August 2025. These have been exempted since 2016.

This move is estimated to reduce investment return on newly issued bonds by 9-12 basis points (bps), or 0.4%–1.1% of the 2025 projected net profits for banks covered by Morningstar, the investment research company said in a report on 6 August.

The policy is also likely to increase the financing cost of banks for issuing new bonds.

“But we ignore such an impact in our analysis, as higher financing costs will be offset by higher bond investment returns,” Morningstar said.

Morningstar continues to expect stable earnings for China-based banks in 2025.

The investment research company maintained its full-year expectation of a 10- to 18- basis point decline in net interest margin (NIM), as the bond tax policy is expected to reduce NIMs by less than 1 bp.

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