Core Viewpoint - The Ministry of Finance and the State Taxation Administration announced that starting from August 8, 2025, interest income from newly issued government bonds, local government bonds, and financial bonds will be subject to value-added tax (VAT) [1] Group 1: Policy Details - The policy adjustment follows a "new and old distinction" principle, meaning that interest income from existing bonds and their subsequent issuances will remain exempt from VAT until maturity [1] - The adjustment is strictly limited to "newly issued bonds," with existing bonds issued before August 8, 2025, continuing to enjoy VAT exemption [1] - In 2024, the stock and new issuance scale of government and financial bonds are projected to be 122 trillion yuan and 33 trillion yuan, respectively, with new issuances accounting for less than 30% of the total stock [1] Group 2: Market Impact - Experts indicate that the 6% VAT rate and the fact that the policy only affects domestic investors, excluding interbank certificates of deposit, will result in manageable overall market pressure [2] - The adjustment is expected to enhance the benchmark nature of the government bond yield curve, as the previous tax exemption led to lower trading activity and higher liquidity premiums [2] - By unifying the tax standards across different types of bonds and financial assets, the adjustment aims to improve the trading activity of government bonds and better establish the pricing benchmark function of the government bond yield curve [2]

Core Viewpoint - The Ministry of Finance and the State Taxation Administration announced that starting from August 8, 2025, interest income from newly issued government bonds, local government bonds, and financial bonds will be subject to value-added tax (VAT), while existing bonds will remain exempt until maturity. This policy aims to enhance the trading activity of government bonds and improve the benchmark role of the government bond yield curve [3][4][5]. Summary by Sections - **Policy Announcement**: The new VAT policy will apply only to bonds issued on or after August 8, 2025, while previously issued bonds will continue to enjoy tax exemption until maturity. This "new and old distinction" principle limits the overall market impact [3][4]. - **Market Context**: In 2024, the total stock of government and financial bonds was 122 trillion yuan, with new issuances amounting to 33 trillion yuan, indicating that new issuances represent less than 30% of the total stock [4]. - **Market Impact**: The VAT rate is set at 6%, and the policy change primarily affects domestic investors, excluding interbank certificates of deposit. Experts believe the overall market pressure will be manageable and the impact controllable [5]. - **Liquidity and Trading Activity**: The adjustment is expected to enhance the liquidity of government bonds, which had previously been low due to the tax exemption encouraging a buy-and-hold strategy. The new policy aims to reduce the liquidity premium and improve trading activity among different types of bonds and financial assets [5]. - **Benchmark Role of Government Bonds**: The unification of tax standards across different bond types is anticipated to strengthen the pricing benchmark function of the government bond yield curve, making it more comparable with other financial assets [5].

Core Points - The Ministry of Finance and the State Taxation Administration announced that from August 8, 2025, interest income from newly issued government bonds, local government bonds, and financial bonds will be subject to value-added tax (VAT) [1][2] - Existing bonds and their subsequent issuances will continue to enjoy VAT exemption until maturity, which limits the overall market impact of this policy change [1][2] - The adjustment is aimed at enhancing the benchmark nature of the government bond yield curve and improving market liquidity by reducing the liquidity premium costs associated with the previous tax exemption [2][3] Summary by Sections Policy Adjustment - The new VAT policy applies strictly to newly issued bonds after August 8, 2025, while existing bonds retain their tax-exempt status until maturity [2] - The government bond and financial bond stock and new issuance scale for 2024 are projected to be 122 trillion yuan and 33 trillion yuan, respectively, with new issuances accounting for less than 30% of the total stock [2] Market Impact - The VAT rate is set at 6%, and the policy change primarily affects domestic investors, excluding interbank certificates of deposit, which mitigates overall market pressure [2] - The previous tax exemption led to lower trading activity and higher liquidity premiums, which the new policy aims to address by increasing trading volume and reducing tax disparities among different financial assets [2][3] Financial Market Functionality - Unifying the tax standards across different types of bonds and financial assets will enhance the comparability of government bond yields with other financial instruments, thereby improving the pricing benchmark function of the government bond yield curve [3]