Impact of VAT Adjustments on Banks’ Bond Allocation and Performance: A Sector Review

• New VAT regulations will apply to interest income from newly issued government and financial bonds starting August 8, 2025.
• Existing bonds and those with a continuation mechanism will still enjoy VAT exemptions.
• Banks, insurance, and brokerage firms face a 6 percent VAT rate, while public funds are taxed at a simplified 3 percent rate.
• Interbank certificates of deposit are expected to remain VAT-exempt.
• Banks may adjust bond allocation strategies, reducing willingness to hold to maturity and slowing the realization of floating profits.
• Banks with strong trading capabilities may benefit, as capital gains tax rules remain unchanged.
• Older bonds become scarce, and banks may be less willing to sell them.
• Banks may increase investment in external funds due to VAT differences, enhancing tax shield effects.
• Preference for credit bonds and interbank certificates of deposit may increase, especially among rural commercial banks.
• New regulations may negatively impact bank performance, with a focus on potential changes in income tax rules.
• Investment suggestions include focusing on low-risk bonds and dividend stocks, with recommendations for specific banks.
• Risks include macroeconomic slowdown and significant bond market interest rate fluctuations.

Source: stock.stockstar.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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