Note 14 – TAXES
Income tax
For the years ended March 31, 2017 and 2016, the income tax provisions were as follow:
| For the year ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Income tax | $ | 84,387 | $ | 96,741 | ||||
The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.
| Entity | Income Tax Jurisdiction | |
| Jo-Jo Drugstores | United States | |
| Renovation | Hong Kong, PRC | |
| All other entities | Mainland, PRC |
The following table reconciles the U.S. statutory tax rates with the Company’s effective tax rate for the years ended March 31, 2017 and 2016:
| For the year | ||||||||
| Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| U.S. Statutory rates | 34 .0 | % | 34 .0 | % | ||||
| Foreign income not recognized in the U.S. | (34.0 | ) | (34.0 | ) | ||||
| China income taxes | 25.0 | 25.0 | ||||||
| Change in valuation allowance (1) | (25.0 | ) | (25.0 | ) | ||||
| Non-deductible expenses-permanent difference (2) | (1.5 | ) | 61.6 | |||||
| Effective tax rate | (1.5 | )% | 61.6 | % | ||||
| (1) | Represents a non-taxable expense reversal due to overall decrease in allowance for accounts receivable and advances to suppliers. |
| (2) | The (1.5)% and 61.6% rate adjustments for the years ended March 31, 2017 and 2016 represent expenses that primarily include stock option expenses and legal, accounting and other expenses incurred by the Company that are not deductible for PRC income tax. |
Jo-Jo Drugstores is incorporated in the U.S. and incurred a net operating loss for income tax purposes for the years ended March 31, 2017 and 2016. As of March 31, 2017, the estimated net operating loss carry forwards for U.S. income tax purposes amounted to $1,503,000, which may be available to reduce future years’ taxable income. These carry forwards will expire if not utilized by 2032. Management believes that the realization of the benefits arising from this loss appears to be uncertain due to the Company’s limited operating history and continuing losses for U.S. income tax purposes. Accordingly, the Company has provided a 100% valuation allowance at December 31, 2015. There was no net change in the valuation allowance for the year ended March 31, 2017 and 2016. Management reviews this valuation allowance periodically and makes adjustments as necessary.
Taxes payable at March 31, 2017 and March 31, 2016 consisted of the following:
| March 31, 2017 | March 31, 2016 | |||||||
| VAT | $ | 615,067 | $ | 422,804 | ||||
| Income tax | 19,416 | 7,454 | ||||||
| Others | 47,456 | 50,086 | ||||||
| Total taxes payable | $ | 681,939 | $ | 483,770 | ||||
The Company has adopted FASB ASC Topic 740-10-05, “Income Taxes.” To date, the adoption of this interpretation has not impacted the Company’s financial position, results of operations, or cash flows. The Company performed a self-assessment and the Company’s liability for income taxes includes liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by taxing authorities. Audit periods remain open for review until the statute of limitations has passed, which in the PRC is usually 5 years. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of March 31, 2017 and March 31, 2016, management considered that the Company had no uncertain tax positions affecting its consolidated financial position and results of operations or cash flows, and will continue to evaluate for any uncertain position in future. There are no estimated interest costs and penalties provided in the Company’s consolidated financial statements for the years ended March 31, 2017 and 2016, respectively. The Company’s tax positions related to open tax years are subject to examination by the relevant tax authorities, the most significant of which is the China Tax Authority.