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INCOME TAXES
 12 Months Ended
Mar. 31, 2012
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
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%. Zhejiang Chisen received official designation by the local tax authority as a foreign invested enterprise engaged in manufacturing activities and is confirmed by the local tax authority that it is exempted from enterprise income tax for two years commencing from the first profitable year in 2006, followed by a 50% reduction for the next three years up to December 31, 2010. 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 the year ended March 31, 2012 and 2011 as the management considered that the undistributed profits were expected to be retained in the PRC subsidiaries and not to be remitted out of the PRC.

 

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

 

 

    Years ended March 31,  
    2012     2011  
    US$’000     US$’000  
             
Current taxes arising in the PRC:                
Corporate income tax     1,047       1,501  
Withholding tax on dividends declared by the PRC foreign investment enterprise     -       946  
                 
      1,047       2,447  

 

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 March 31, 2012 and 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 March 31, 2012 and 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 the years ended March 31, 2012 and 2011, 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% (2011: 25%) is as follows:

 

    Years ended March 31,  
    2012     2011  
    US$’000     US$’000  
             
Expected income tax expenses     (6,504 )     2,729  
Effect on tax incentives / holiday     2,162       (1,281 )
Withholding tax     -       946  
Unrecognized tax losses and temporary differences     4,939       -  
Non-taxable income     -       (118 )
Under provided in prior year     92       -  
Others     358       171  
                 
Income tax expenses     1,047       2,447  

 

(c) Components of deferred tax liabilities were as follows:

 

            
    As of
 March 31,		     As of
 March 31,		  
    2012     2011  
      US$’000       US$’000  
                 
Withholding tax on undistributed earnings of a PRC subsidiary     460       460  

 

(d) Components of deferred tax assets were as follows:

 

    As of
 March 31,		     As of
 March 31,		  
    2012     2011  
    US$’000     US$’000  
             
Depreciation and impairment     1,036       -  
Provisions and accruals     623       -  
Tax losses carried forward     3,280       -  
                 
      4,939       -  
Valuation allowance     (4,939 )     -  
                 
Net deferred tax assets     -       -  

 

As it is not probable that taxable profits will be available against which the deductible temporary differences and the used tax losses of Zhejiang Chisen can be utilized, deferred tax assets have not been recognized.