9.	Income tax expense

Income tax expense in the consolidated statement of profit or loss consists of:


	31.12.2016		31.12.2017			31.12.2018			31.12.2018
	RMB’000		RMB’000			RMB’000			US$’000

			(Restated)

Current income tax
- Current year		104,149		197,264			209,448			31,307
- Under/(over) provision in respect of prior years		7,175		(2,867	)		(729	)		(109	)

Deferred tax
- Movement in temporary differences		48,946		(225	)		(2,052	)		(307	)

Consolidated income tax expense reported in the statement of profit or loss		160,270		194,172			206,667			30,891

Income tax expense reported in the consolidated statement of profit or loss differs from the amount computed by applying the PRC income tax rate of 15% (being tax rate of Yuchai) for the years ended December 31, 2018, 2017 and 2016 for the following reasons:


	31.12.2016			31.12.2017			31.12.2018			31.12.2018
	RMB’000			RMB’000			RMB’000			US$’000

				(Restated)

Accounting profit before tax		896,232			1,514,028			1,181,067			176,538
Computed tax expense of 15% (2017: 15%, 2016: 15%)		134,435			227,104			177,160			26,481
Adjustments resulting from:
Non-deductible expenses		7,039			21,982			5,146			769
Tax-exempt income		(178	)		(58,324	)		(3,634	)		(543	)
Utilization of deferred tax benefits previously not recognized		(5,010	)		(16,687	)		(5,518	)		(825	)
Deferred tax benefits not recognized		9,045			8,084			2,183			326
Tax credits for research and development expense		(34,482	)		(34,428	)		(22,407	)		(3,349	)
Tax rate differential		25,321			21,061			24,437			3,653
Under/(over) provision in respect of previous years current tax		7,175			(2,867	)		(729	)		(109	)
Withholding tax expense		16,925			29,447			30,029			4,488
Others		—			(1,200	)		—			—

Total		160,270			194,172			206,667			30,891

Deferred tax

Deferred tax relates to the following:


	Consolidated statement of financial position									Consolidated statement of profit or loss
	31.12.2017			31.12.2018			31.12.2018			31.12.2016			31.12.2017			31.12.2018			31.12.2018
	RMB’000			RMB’000			US$’000			RMB’000			RMB’000			RMB’000			US$’000

										(Restated)			(Restated)

Deferred tax liabilities
Accelerated tax depreciation		(15,122	)		(27,554	)		(4,119	)		373			(4,601	)		(12,432	)		(1,859	)
Unremitted earnings from overseas source income		—			—			—			(25	)		—			—			—
Interest receivable		(774	)		(2,252	)		(336	)		(1,471	)		679			(1,478	)		(221	)
Derivatives not designated as hedges- foreign exchange forward contract		—			—			—			2,326			—			—			—
PRC withholding tax on dividend income ⁽ⁱ⁾		(100,572	)		(106,922	)		(15,982	)		(16,628	)		(29,031	)		(29,842	)		(4,460	)

		(116,468	)		(136,728	)		(20,437	)		(15,425	)		(32,953	)		(43,752	)		(6,540	)

Deferred tax assets
Impairment of property, plant and equipment		12,319			15,943			2,383			(9,005	)		9,443			3,624			542
Write-down of inventories		17,493			16,060			2,400			(4,421	)		(3,716	)		(1,433	)		(214	)
Allowance for doubtful account receivables		7,376			5,177			774			7,196			(1,964	)		(2,199	)		(329	)
Accruals		204,730			204,554			30,576			(46,350	)		18,778			(186	)		(28	)
Deferred income		51,679			95,499			14,275			10,045			6,743			43,820			6,550
Others		21,793			23,974			3,583			9,014			3,894			2,178			326

		315,390			361,207			53,991			(33,521	)		33,178			45,804			6,847

											(48,946	)		225			2,052			307

Note:

⁽ⁱ⁾

The movement of PRC withholding tax on dividend income is as follows:


	31.12.2017			31.12.2018			31.12.2018
	RMB’000			RMB’000			US$’000

At January 1		(103,347	)		(100,572	)		(15,033	)
Provision made to consolidated statement of profit or loss		(29,031	)		(29,842	)		(4,460	)
Utilization		31,806			23,492			3,511

December 31		(100,572	)		(106,922	)		(15,982	)

The Corporate Income Tax (“CIT”) law provides for a tax of 10% to be withheld from dividends paid to foreign investors of PRC enterprises. This withholding tax provision does not apply to dividends paid out of profit earned prior to January 1, 2008. Beginning on January 1, 2008, a 10% withholding tax is imposed on dividends paid to the Company, as a non-resident enterprise, unless an applicable tax treaty provides for a lower tax rate. The Company recognizes a deferred tax liability for withholding tax payable for profits accumulated after December 31, 2007 for the earnings that the Company does not plan to indefinitely reinvest in the PRC enterprises. As of December 31, 2018, the deferred tax liability for withholding tax payable was RMB 106.9 million (US$16.0 million) (2017: RMB 100.6 million). The amount of unrecognized deferred tax liability relating to undistributed earnings of the PRC enterprises is estimated to be RMB 249.2 million (US$37.3 million) (2017: RMB 228.0 million).

The following table represents the classification of the Group’s net deferred tax assets:


	31.12.2017			31.12.2018			31.12.2018
	RMB’000			RMB’000			US$’000
Deferred tax assets		315,390			361,207			53,991
Deferred tax liabilities		(116,468	)		(136,728	)		(20,437	)

		198,922			224,479			33,554

Deferred tax assets have not been recognized in respect of the following items:


	31.12.2017		31.12.2018		31.12.2018
	RMB’000		RMB’000		US$’000
Unutilized tax losses		479,410		396,232		59,227
Unutilized capital allowances and investment allowances		107,266		107,588		16,082
Other unrecognized temporary differences relating to asset impairment and deferred grants		230,269		222,868		33,312

		816,945		726,688		108,621

Unrecognized tax losses for the Group are subject to agreement with the tax authorities and compliance with tax regulations in the respective countries in which the Group operates. These losses relate to subsidiaries that have a history of losses, expire within the next 5 years and may not be used to offset taxable income elsewhere in the Group. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profits will be available against which the Group can utilize the benefits.