8. INCOME TAXES
The Company is required to file income tax returns in both the United States and the PRC. Its operations in the United States have been insignificant and income taxes have not been accrued.
The provision for income taxes consisted of the following for the years ended March 31:
|
|
| 2017 |
| 2016 |
|
|
|
|
|
|
| Current | $ | 4,444,504 | $ | 4,575,137 |
| Deferred |
| 32,810 |
| (32,810) |
|
|
|
|
|
|
|
| $ | 4,477,314 | $ | 4,542,327 |
The following table reconciles the effective income tax rates with the statutory rates for the years ended March 31, respectively:
|
|
| 2017 |
| 2016 |
|
|
|
|
|
|
| Statutory rate - PRC |
| 25.0% |
| (25.0)% |
| Non-deductible deconsolidation loss |
| 8.9% |
| - |
| Non-deductible equity investment loss |
| 0.2% |
| - |
| Non-deductible stock compensation |
| - |
| 146.9% |
| Benefit of carryforward losses |
| 0.3% |
| (0.9)% |
| Other |
| 1.9% |
| 1.0% |
|
|
|
|
|
|
| Effective income tax rate |
| 36.1% |
| 122.0% |
The Company did not recognize any tax benefit related to Parent’s loss of approximately $(15,865,000) since it has no income. The stock compensation of approximately $15,865,000 would be deductible only to the U.S. Parent Company and accordingly there is no deferred tax benefit to be recognized. The stock compensation of approximately $6,017,000 can’t be deducted by the Operating Company under PRC tax laws.
Deferred tax assets and liabilities are recognized for expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The laws of China permit the carry-forward of net operating losses for a period of five years. U.S. federal net operating losses can generally be carried forward twenty years.
Deferred tax assets are comprised of the following:
|
|
| March 31, 2017 |
| March 31, 2016 | ||
|
|
|
|
|
| ||
| Net operating loss carryforwards | $ | 7,203,344 | $ | 6,333,864 | ||
| Inventory intercompany profit |
| - |
| 2,596 | ||
| Less: valuation allowance |
| (7,203,344) |
| (6,303,650) | ||
|
|
|
|
|
| ||
| Net deferred tax asset |
| $ | - |
| $ | 32,810 |
At March 31, 2017 and 2016, the Company had unused operating loss carry-forwards of approximately $20,685,000 and $16,215,000 respectively, expiring in various years through 2037. As it is more likely than not that the benefit from the NOL carryforwards will not be realized, $7,239,616 and $6,303,650 valuation allowances have been recognized as of March 31, 2017 and 2016, respectively. The valuation allowance increased by approximately $900,000 and $6,243,000 for the years ended March 31, 2017 and 2016, respectively. The carryforwards are principally in the United States.
The Company’s tax filings are subject to examination by the tax authorities. The tax years March 31, 2016, 2015 and 2014 remain open to examination by the tax authorities in the PRC. The Company’s U.S. tax returns for the years ended March 31, 2016, 2015, and 2014 are subject to examination by the tax authorities.