20. INCOME TAXES

Income tax provision

The table below presents the components of income before income taxes for the years ended June 30, 2015, 2014 and 2013:


		2015			2014			2013

South Africa	$	137,138		$	121,338		$	38,654
United States		(7,286	)		(9,923	)		(10,075	)
Other		10,566			(2,273	)		(1,300	)
Income before income taxes	$	140,418		$	109,142		$	27,279

Presented below is the provision for income taxes by location of the taxing jurisdiction for the years ended June 30, 2015, 2014 and 2013:


		2015			2014			2013

Current income tax	$	48,795		$	61,902		$	33,968
South Africa		39,901			41,326			15,418
United States		3,109			14,838			16,061
Other		5,785			5,738			2,489
Deferred taxation (benefit) charge		(2,292	)		(7,887	)		(4,915	)
South Africa		398			(3,345	)		(2,037	)
United States		485			(107	)		(331	)
Other		(3,175	)		(4,435	)		(2,547	)
Capital gains tax		-			202			7
Foreign tax credits generated – United States		(2,367	)		(14,838	)		(14,404	)
Income tax provision	$	44,136		$	39,379		$	14,656

There were no significant capital gains taxes paid during the years ended June 30, 2015, 2014 and 2013.

There were no changes to the enacted tax rate in the years ended June 30, 2015, 2014 and 2013.

The movement in the valuation allowance for the year ended June 30, 2015, relates primarily to the release of the valuation allowance resulting from the utilization of foreign tax credits during the year .The movement in the valuation allowance for the year ended June 30, 2014, relates to releases of the valuation allowance resulting from the utilization of foreign tax credits during the year and deconsolidation of net operating loss carryforwards for MediKredit. The movement in the valuation allowance for the year ended June 30, 2013, relates to valuation allowances for foreign tax credits and valuation allowances related to net operating loss carryforwards for the Company's South African subsidiaries, primarily MediKredit.

Net1 included actual and deemed dividends received from one of its South African subsidiaries in its years ended June 30, 2015, 2014 and 2013, taxation computation. Net1 applied net operating losses against this income. Net1 generated foreign tax credits as a result of the inclusion of the dividends in its taxable income. Net1 has applied certain of these foreign tax credits against its current income tax provision for the year ended June 30, 2015, 2014 and 2013.

A reconciliation of income taxes, calculated at the fully-distributed South African income tax rate to the Company's effective tax rate, for the years ended June 30, 2015, 2014 and 2013 is as follows:

	2015		2014		2013
Income tax rate reconciliation:
Income taxes at fully-distributed South African tax rates	28.00	%	28.00	%	28.00	%
Non-deductible items	2.36	%	4.71	%	6.78	%
Foreign tax rate differential	0.06	%	1.89	%	10.39	%
Foreign tax credits	(1.68	%)	(13.59	%)	(52.80	%)
Taxation on deemed dividends in the United States	3.46	%	13.46	%	57.32	%
Capital gains tax paid	0.00	%	0.19	%	0.03	%
Movement in valuation allowance	(0.08	%)	1.23	%	9.40	%
Prior year adjustments	(0.69	%)	0.19	%	(5.39	%)
Income tax provision	31.43	%	36.08	%	53.73	%

The non-deductible items during the year ended June 30, 2015, include primarily legal and consulting fees incurred that are not deductible for tax purposes. The non-deductible items during the year ended June 30, 2014, relates principally to expenses that are not deductible for tax purposes, including the charge related to the equity awards issued pursuant to the Company's BEE transactions, stock-based compensation charges, costs incurred to support foreign related entities and interest expense. The non-deductible items during the year ended June 30, 2013, relates principally to expenses that are not deductible for tax purposes, including stock-based compensation charges, costs incurred to support foreign related entities and interest expense. The foreign tax rate differential represents the difference between statutory tax rates in South Africa and foreign jurisdictions, primarily the United States.

Deferred tax assets and liabilities

Deferred income taxes reflect the temporary differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The primary components of the temporary differences that gave rise to the Company's deferred tax assets and liabilities as at June 30, and their classification, were as follows:

		2015			2014
Total deferred tax assets
Net operating loss carryforwards	$	1,216		$	1,901
Provisions and accruals		5,653			5,470
FTS patent		691			909
Intangible assets		616			123
Foreign tax credits		20,212			23,338
Other		7,330			7,765
Total deferred tax assets before valuation allowance		35,718			39,506
Valuation allowances		(22,550	)		(25,153	)
Total deferred tax assets, net of valuation allowance		13,168			14,353
Total deferred tax liabilities:
Intangible assets		11,510			16,600
Other		4,924			5,824
Total deferred tax liabilities		16,434			22,424
Reported as
Current deferred tax assets		7,298			7,451
Long term deferred tax liabilities		10,564			15,522
Net deferred income tax liabilities	$	3,266		$	8,071

Decrease in total deferred tax liabilities

Intangible assets

Deferred tax liabilities – intangible assets have decreased during the year ended June 30, 2015, primarily as a result of the amortization of the underlying KSNET intangible assets during the year.

Decrease in valuation allowance

At June 30, 2015, the Company had deferred tax assets of $13.2 million (2014: $14.4 million), net of the valuation allowance. Management believes, based on the weight of available positive and negative evidence it is more likely than not that the Company will realize the benefits of these deductible differences, net of the valuation allowance. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of taxable income are revised.

At June 30, 2015, the Company had a valuation allowance of $22.6 million (2014: $25.2 million) to reduce its deferred tax assets to estimated realizable value. The movement in the valuation allowance for the years ended June 30, 2015 and 2014, is presented below:

											Net
					Foreign			Tax			operating
					tax			deductible			loss carry-			FTS
		Total			credits			goodwill			forwards			patent			Other
July 1, 2013	$	54,117		$	24,636		$	16,957		$	11,814		$	474		$	236
Reversed to statement of operations		(1,412	)		(1,412	)		-			-			-			-
Charged to statement of operations		1,442			113			-			1,329			-			-
Utilized		(26,698	)		-			(17,682	)		(9,016	)		-			-
Deconsolidation		(3,075	)		-			-			(3,075	)		-			-
Foreign currency adjustment		779			-			725			192			(105	)		(33	)
June 30, 2014	$	25,153		$	23,337		$	-		$	1,244		$	369		$	203
Reversed to statement of operations		(3,126	)		(3,126	)		-			-			-			-
Charged to statement of operations		794			-			-			-			-			794
Utilized		(128	)		-			-			(128	)		-			-
Foreign currency adjustment		(143	)		-			-			(28	)		(115	)		-
June 30, 2015	$	22,550		$	20,211		$	-		$	1,088		$	254		$	997

Net operating loss carryforwards and foreign tax credits

United States

As of June 30, 2015, Net1 had net operating loss carryforwards that will expire, if unused, as follows:

Year of expiration		U.S. net operating
		loss carry
		forwards
2025	$	2,974

During the year ended June 30, 2015 and 2014, Net1 generated additional foreign tax credits related to the cash dividends received. Net1 had no net unused foreign tax credits that are more likely than not to be realized as of June 30, 2015 and 2014, respectively. The unused foreign tax credits generated expire after ten years in 2024, 2023, 2022, 2021 and 2020.

South Africa

Net operating losses incurred in South Africa generally expire if a company does not trade during the year. In South Africa, the subsidiary companies that incurred the losses are currently trading and will continue to trade for the foreseeable future.

Uncertain tax positions

As of June 30, 2015 and 2014, the Company has unrecognized tax benefits of $2.3 million and $1.2 million, respectively, all of which would impact the Company's effective tax rate. The Company files income tax returns mainly in South Africa, South Korea, Austria, Botswana and in the U.S. federal jurisdiction. As of June 30, 2015, the Company's South African subsidiaries are no longer subject to income tax examination by the South African Revenue Service for periods before June 30, 2010. The Company is subject to income tax in other jurisdictions outside South Africa, none of which are individually material to its financial position, statement of cash flows, or results of operations. The Company does not expect the change related to unrecognized tax benefits will have a significant impact on its results of operations or financial position in the next 12 months.

The following is a reconciliation of the total amounts of unrecognized tax benefits for the year ended June 30, 2015, 2014 and 2013:

		2015			2014			2013
Unrecognized tax benefits - opening balance	$	1,160		$	1,150		$	1,314
Gross decreases - tax positions in prior periods		-			-			(170	)
Gross increases - tax positions in current period		1,311			38			216
Lapse of statute limitations		-			-			-
Foreign currency adjustment		(149	)		(28	)		(210	)
Unrecognized tax benefits - closing balance	$	2,322		$	1,160		$	1,150

As of June 30, 2015 and 2014, the Company had accrued interest related to uncertain tax positions of approximately $0.3 million and $0.2 million, respectively, on its balance sheet.