Income tax expense

12 Months Ended

Dec. 31, 2023

8.	Income tax expense

The major components of income tax expense for the years ended December 31, 2021, 2022 and 2023 are as follows:


	31.12.2021			31.12.2022			31.12.2023			31.12.2023
	RMB’000			RMB’000			RMB’000			US$’000
Current income tax
- Current year		48,856			72,909			81,365			11,454
- (Over)/under provision in respect of prior years		(21,523	)		27,406			27,837			3,919
Deferred tax
- Movement in temporary differences		16,483			(41,147	)		(14,837	)		(2,089	)
- (Over)/under provision in respect of prior years		—			(103	)		54,131			7,620

Consolidated income tax expense reported in the statement of profit or loss		43,816			59,065			148,496			20,904

The reconciliation between tax expense and the product of accounting profit multiplied by the PRC income tax rate of 15% (being tax rate of Yuchai) for the years ended December 31, 2021, 2022 and 2023 for the following reasons:


	31.12.2021			31.12.2022			31.12.2023			31.12.2023
	RMB’000			RMB’000			RMB’000			US$’000
Profit before tax		451,710			394,726			571,352			80,431
Income tax expense at 15%		67,757			59,209			85,703			12,064
Adjustments:
Non-deductible expenses		17,795			7,924			5,888			829
Tax-exempt income		(2,181	)		(500	)		(11,993	)		(1,688	)
Utilization of deferred tax benefits previously not recognized		(29	)		(3,093	)		(6,211	)		(874	)
Deferred tax benefits not recognized		10,356			22,606			42,830			6,029
Tax credits for research and development expense		(59,633	)		(76,835	)		(85,372	)		(12,018	)
Tax rate differential		16,517			10,901			21,542			3,032
(Over)/under provision in respect of previous years		(21,523	)		27,303			81,968			11,539
Withholding tax expense		14,639			11,535			14,872			2,094
Others		118			15			(731	)		(103	)

Total		43,816			59,065			148,496			20,904

Global minimum top-up tax

The Group has applied a temporary mandatory relief from deferred tax accounting for the impact of the top-up tax and accounts for it as a current tax when it is incurred.

The Group is in the progress of assessing the exposure to the Pillar Two income taxes arising from the legislation. Due to the complex nature of the legislation and the calculations including the determination of the adjustments required under the Pillar Two legislation, the Group assessed that the quantitative impact of the potential top-up tax arising from the enacted/substantively enacted legislation is not yet reasonably estimatable. The Group continues to assess the impact of the Pillar Two legislation on its financials.

Deferred tax

Deferred tax relates to the following:


	Consolidated statement of financial position									Consolidated statement of profit or loss
	31.12.2022			31.12.2023			31.12.2023			31.12.2021			31.12.2022			31.12.2023			31.12.2023
	RMB’000			RMB’000			US$’000			RMB’000			RMB’000			RMB’000			US$’000
Accelerated tax depreciation		(122,298	)		(77,806	)		(10,953	)		(37,968	)		16,472			44,492			6,263
Interest receivable		(3,033	)		—			—			(1,459	)		363			3,033			427
PRC withholding tax on dividend income ( i )		(61,825	)		(64,717	)		(9,110	)		(14,529	)		(11,458	)		(14,457	)		(2,035	)
Effect of change in residual value an d impairment of property, plant and equipment		69,641			2,866			404			25,264			4,273			(66,774	)		(9,400	)
Write-down of inventories		29,503			37,120			5,226			(2,378	)		9,253			7,617			1,072
Impairment losses on trade receivables		7,071			7,426			1,045			(1,267	)		282			355			50
Accruals		234,586			232,048			32,666			(15,339	)		(48,841	)		(2,505	)		(352	)
Deferred income		56,480			79,896			11,247			(11,114	)		(41,348	)		23,416			3,296
Losses available for offsetting against future taxable income		139,747			112,601			15,851			23,072			116,675			(27,146	)		(3,821	)
Others		39,185			31,854			4,484			19,235			(4,421	)		(7,325	)		(1,031	)

Deferred tax (expenses)/benefits											(16,483	)		41,250			(39,294	)		(5,531	)

Net deferred tax assets		389,057			361,288			50,860

Reflected in the consolidated statement of financial position as follows:
Deferred tax assets		450,882			426,377			60,023
Deferred tax liabilities		(61,825	)		(65,089	)		(9,163	)

		389,057			361,288			50,860

Note:

(i)

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


	31.12.2022			31.12.2023			31.12.2023
	RMB’000			RMB’000			US$’000
At January 1		(65,544	)		(61,825	)		(8,703	)
Provision made to consolidated statement of profit or loss		(11,458	)		(14,457	)		(2,035	)
Utilization		15,177			11,565			1,628

December 31		(61,825	)		(64,717	)		(9,110	)

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, 202

, the deferred tax liability for withholding tax payable was RMB 64.7 million (US$9.1 million) (2022: RMB 61.8 million). The amount of unrecognized deferred tax liability relating to undistributed earnings of the PRC enterprises is estimated to be RMB 204.7 million (US$28.8 million) (2022: RMB 190.7 million).

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


	31.12.2022		31.12.2023		31.12.2023
	RMB’000		RMB’000		US$’000
Unutilized tax losses		473,456		628,534		88,481
Unutilized capital allowances and investment allowances		100,643		94,447		13,296
Other unrecognized temporary differences relating to asset impairment and deferred grants		142,851		156,226		21,993

		716,950		879,207		123,770

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 to 10 years and 10 years, respectively. 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.