Income tax expense

12 Months Ended

Dec. 31, 2020

8 .	Income tax expense

The major components of income tax expense for the years ended December 31, 2018, 2019 and 2020 are as follows:


	31.12.2018			31.12.2019			31.12.2020			31.12.2020
	RMB’000			RMB’000			RMB’000			US$’000

Current income tax
- Current year		209,448			193,878			180,254			27,854
- Over provision in respect of prior years		(729	)		(6,985	)		(124	)		(19	)
Deferred tax
- Movement in temporary differences		(2,052	)		(14,274	)		12,543			1,938
- Over provision in respect of prior years		—			—			(135	)		(20	)

Consolidated income tax expense reported in the statement of profit or loss		206,667			172,619			192,538			29,753

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, 2019 and 2020 for the following reasons:


	31.12.2018			31.12.2019			31.12.2020			31.12.2020
	RMB’000			RMB’000			RMB’000			US$’000

Accounting profit before tax		1,181,067			1,033,319			971,864			150,180
Computed tax expense at 15% (2019: 15%, 2018: 15%)		177,160			154,998			145,780			22,527
Adjustments resulting from:
Non-deductible expenses		5,146			3,982			9,188			1,420
Tax-exempt income		(3,634	)		(6,171	)		(601	)		(93	)
Utilization of deferred tax benefits previously not recognized		(5,518	)		(5,076	)		(1,996	)		(308	)
Deferred tax benefits not recognized		2,183			6,613			6,097			942
Tax credits for research and development expense		(22,407	)		(31,863	)		(26,329	)		(4,068	)
Tax rate differential		24,437			26,223			24,251			3,747
Over provision in respect of previous years		(729	)		(6,985	)		(259	)		(39	)
Withholding tax expense		30,029			30,898			36,332			5,614
Others		—			—			75			11

Total		206,667			172,619			192,538			29,753

Deferred tax

Deferred tax relates to the following:


	Consolidated statement of financial position									Consolidated statement of profit or loss
	31.12.2019			31.12.2020			31.12.2020			31.12.2018			31.12.2019			31.12.2020			31.12.2020
	RMB’000			RMB’000			US$’000			RMB’000			RMB’000			RMB’000			US$’000

Accelerated tax depreciation		(44,920	)		(100,802	)		(15,577	)		(12,432	)		(17,366	)		(55,882	)		(8,635	)
Interest receivable		(1,644	)		(1,937	)		(299	)		(1,478	)		608			(293	)		(45	)
PRC withholding tax on dividend income (i)		(106,922	)		(112,456	)		(17,378	)		(29,842	)		(30,721	)		(36,255	)		(5,602	)
Impairment of property, plant and equipment		6,648			40,104			6,197			3,624			(9,295	)		33,456			5,170
Write-down of inventories		18,403			22,628			3,497			(1,433	)		2,343			4,225			653
Allowance for doubtful account receivables		10,077			8,056			1,245			(2,199	)		4,900			(2,021	)		(312	)
Accruals		250,662			298,766			46,168			(186	)		46,108			48,149			7,440
Deferred income		107,731			108,942			16,834			43,820			12,232			1,211			187
Others		29,439			24,441			3,777			2,178			5,465			(4,998	)		(774	)

Deferred tax benefits/(expenses)											2,052			14,274			(12,408	)		(1,918	)

Net deferred tax assets		269,474			287,742			44,464

Reflected in the consolidated statement of financial position as follows:
Deferred tax assets		422,960			400,198			61,842
Deferred tax liabilities		(153,486	)		(112,456	)		(17,378	)

		269,474			287,742			44,464

Note:

(i)

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


	31.12.2019			31.12.2020			31.12.2020
	RMB’000			RMB’000			US$’000

At January 1		(106,922	)		(106,922	)		(16,522	)
Provision made to consolidated statement of profit or loss		(30,721	)		(36,255	)		(5,602	)
Utilization		30,721			30,721			4,746

December 31		(106,922	)		(112,456	)		(17,378	)

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, 2020, the deferred tax liability for withholding tax payable was RMB 112.5 million (US$17.4 million) (2019: RMB 106.9 million). The amount of unrecognized deferred tax liability relating to undistributed earnings of the PRC enterprises is

stimated

to be

RMB 236.4 million (US$36.5 million)

(2019

RMB 253.5

million).

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


	31.12.2019		31.12.2020		31.12.2020
	RMB’000		RMB’000		US$’000
Unutilized tax losses		414,226		404,215		62,463
Unutilized capital allowances and investment allowances		107,613		105,622		16,322
Other unrecognized temporary differences relating to asset impairment and deferred grants		215,296		204,423		31,589

		737,135		714,260		110,374

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. The unutilized tax losses for PRC subsidiaries and Malaysia subsidiaries expire within the next 5 years and 7 years,

respectivel

. These losses 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.