China to Tax Bond Interest Income After Decades of Exemption (1)

China said it plans to tax interest income on bonds issued by the government and financial institutions, in a surprise move that’s prompted investors to reevaluate their debt market positions.

The government will resume collection of value-added tax on interest income from bonds sold by central and local governments, as well as those from financial institutions starting Aug. 8, the Ministry of Finance said in a statement released on Friday. Bonds issued before that, including the reopening sales on these notes, will be exempted from the tax.

The new rule is likely to push up the cost of borrowing new ...