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INCOME TAXES
 6 Months Ended
Sep. 30, 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%. 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, 2012 and 2011 as the management considered that there is no change in the expected amount of profits to be distributed in the foreseeable future.

 

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

 

    Three months ended
September 30,		     Six months ended
September 30,		  
    2012     2011     2012     2011  
    US$’000     US$’000     US$’000     US$’000  
                         
Current taxes arising in the PRC:                                
Corporate income tax     -       660       -       695  
                                 
Deferred taxes arising in the PRC:                                
Benefit of tax loss recognized     -       (129 )     -       (613 )
                                 
      -       531       -       82  

 

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, 2012 and March 31, 2012, 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, 2012 and March 31, 2012, 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, 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:

 

    Three months ended
September 30,		     Six months ended
September 30,		  
    2012     2011     2012     2011  
    US$’000     US$’000     US$’000     US$’000  
                         
Expected income tax expenses     (7,633 )     355       (10,256 )     (465 )
Effect on tax incentives / holiday     2,793       93       3,279       415  
Unrecognized tax losses and temporary difference     4,988       -       6,853       -  
Others     (148 )     83       124       132  
                                 
Income tax expenses     -       531       -       82  

 

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

 

    As of
September 30,		     As of
March 31,		  
    2012     2012  
    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
September 30,		     As of
 March 31,		  
    2012     2012  
    US$’000     US$’000  
             
Depreciation and impairment     240       1,036  
Provisions and accruals     3,498       623  
Tax losses carried forward     8,054       3,280  
                 
      11,792       4,939  
Valuation allowance     (11,792 )     (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 unused tax losses of Zhejiang Chisen and Chisen Jiangsu can be utilized, valuation allowance of US$11,792,000 was made as of September 30,2012.