4.	INCOME TAXES

Chisen Electric had a net operating loss carry-forward for income tax reporting purposes that might be offset against future taxable income. No tax benefit has been reported in the financial statements, because Chisen Electric believes that it is more likely than not that the carry-forwards will finally expire and therefore cannot be used. Accordingly, the potential tax benefits of the loss carry-forwards are offset by a valuation allowance of the same amount.

Chisen Electric’s subsidiaries are subject to income taxes on an entity basis on income arising in or derived from the tax jurisdictions in which each entity domiciles and operates.

Hong Kong Profits Tax has not been provided as Fast More had no assessable profit for the period.

Zhejiang Chisen and Chisen Jiangsu are subject to state and local enterprise income taxes in the PRC at a standard rate of 25%. Since January 1, 2011, Zhejiang Chisen has been designated by the local tax authority as “New and High Technology Enterprises”. As a result, the effective tax rate applicable to Zhejiang Chisen was 15% commencing on January 1, 2011.

Dividends payable by a foreign invested enterprise in the PRC to its foreign investors in Hong Kong are subject to a 10% withholding tax. No deferred tax expenses on undistributed profits were charged to the statement of operations for both the three months and six months ended September 30, 2011 and 2010.

(a)

Income tax (benefits) expenses are comprised of the following:

	Three months ended September 30,					Six months ended September 30,
	2011			2010		2011			2010
	US$’000			US$’000		US$’000			US$’000

Current taxes arising in the PRC:Corporate income tax		660			912		695			1,161

Deferred taxes arising in the PRC:Benefit of tax loss recognized		(129	)		-		(613	)		-

		531			912		82			1,161

The FASB ASC Topic 740 “Income Taxes” clarifies the accounting and disclosure for uncertainty in tax positions, as defined, and prescribes the measurement process and a minimum recognition threshold for a tax position, taken or expected to be taken in a tax return, that is required to be met before being recognized in the financial statements. Under ASC 740, the Company must recognize the tax benefit from an uncertain position only if it is more-likely-than-not the tax position will be sustained on examination by the tax authority, based on the technical merits of the position. The tax benefits recognized in the financial statements attributable to such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate resolution of the position.

Subject to the provision of ASC 740, the Company has analyzed its filing positions in all of the jurisdictions where it is required to file income tax returns. As of September 30, 2011 and March 31, 2011, the Company has identified the following jurisdictions as “major” tax jurisdictions, as defined, in which it is required to file income tax returns namely the United States, Hong Kong and the PRC. Based on the evaluations noted above, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its consolidated financial statements.

As of September 30, 2011 and March 31, 2011, the Company had no unrecognized tax benefits or accruals for the potential payment of interest and penalties. The Company’s policy is to record interest and penalties in this connection as a component of the provision for income tax expense. For both the three months and six months ended September 30, 2011 and 2010, no interest or penalties were recorded.

(b)

Reconciliation from the expected income tax expenses calculated with reference to the statutory tax rate in the PRC of 25% (2010: 25%) is as follows:

	Three months ended September 30,					Six months ended September 30,
	2011		2010			2011			2010
	US$’000		US$’000			US$’000			US$’000

Expected income tax expenses		355		1,588			(465	)		2,027
Effect on tax incentives / holiday		93		(794	)		415			(996	)
Non-taxable income		-		-			-			(34	)
Others		83		118			132			164

Income tax expenses		531		912			82			1,161

(c)

The following is the analysis of major deferred taxation (liabilities) assets recognized by the Company and movement thereon:

	Withholding tax on undistributed earnings of a PRC subsidiary			Tax loss of a PRC subsidiary		Total
	US$’000			US$’000		US$’000

As of March 31, 2011 and 2010		(460	)		-		(460	)
Credited to consolidated statement of operations and other comprehensive income		-			613		613

As of September 30, 2011		(460	)		613		153