Questions Arising from Strengthened Tax Supervision on BOC: Effective Tax Rate and Liquidity

Research evidence excerpt

Questions Arising from Strengthened Tax Supervision on BOC: Effective Tax Rate and Liquidity

Equity Research

26 June 2026 | 5:55AM HKT

CHINA BANKS

Questions Arising from Strengthened Tax Supervision on BOC: Effective

Tax Rate and Liquidity

According to news reports (link), China’s National Audit Office reported that BOC Shuo Yang, Ph.D.

+852-2978-0701 | shuo.yang@gs.com

evaded Rmb 2.367bn in taxes, representing approximately 1% of its net profit. BOC’s Goldman Sachs (Asia) L.L.C.

H-share price declined by more than 5% at the last close, contributing to a 3% Claire Ouyang

decline in Chinese banks’ H-shares. The news reports indicate that BOC achieved tax +852-2978-6686claire.x.ouyang@gs.com|

reductions by packaging private fund products as public funds. In light of this news, Goldman Sachs (Asia) L.L.C.

we see investors will likely focus on two key questions: 1) whether this reported

incident could create upward pressure on banks’ effective tax rates, potentially

weighing on net profit; 2) whether interbank liquidity could tighten as a result.

Our view is as follows:

1. The effective tax rate for Chinese banks is unlikely to rise materially as a result of

the news report.

This is mainly because the decline in effective tax rates in recent years has primarily

been driven by banks’ purchases of government bonds, which are tax-exempt. While

income generated from banks’ holdings of mutual funds may also qualify for tax

exemptions, the volume of newly acquired government bonds far exceeds that of

newly acquired public funds.

Based on available data, using the four large banks as an example, the aggregate

increase in government bond holdings reached Rmb 16tn over the past three years,

while the total increase in fund investments amounted to Rmb 0.3tn (Exhibit 1,

Exhibit 2).