NOTE 11 – TAXES PAYABLE

Enterprise Income Tax

Effective January 1, 2008, the Enterprise Income Tax (“EIT”) law of the PRC replaced the tax laws for Domestic Enterprises (“DEs”) and Foreign Invested Enterprises (“FIEs”). The EIT rate of 25% replaced the 33% rate that was applicable to both DEs and FIEs. The two-year tax exemption and three-year 50% tax reduction tax holiday for production-oriented FIEs was eliminated. Since January 1, 2008, Jinong became subject to income tax in China at a rate of 15% as a high-tech company, because of the expiration of its tax exemption on December 31, 2007. Accordingly, it made provision for income taxes for the years ended June 30, 2017 and 2016 of $3,521,978 and $3,592,823, respectively, which is mainly due to the operating income from Jinong. Gufeng is subject to 25% EIT rate and thus it made provision for income taxes of $2,148,326 and $3,584,006 for the year ended June 30, 2017 and 2016, respectively.

Value-Added Tax

Certain fertilizer products that are produced and sold in the PRC were subject to a Chinese Value-Added Tax (VAT) of 13% of the gross sales price. On April 29, 2008, the PRC State of Administration of Taxation (SAT) released Notice #56, “Exemption of VAT for Organic Fertilizer Products”, which allows certain fertilizer products to be exempt from VAT beginning June 1, 2008. The Company submitted the application for exemption in May 2009, which was granted effective September 1, 2009, continuing through December 31, 2015.

Income Taxes and Related Payables

Taxes payable consisted of the following:

	June 30,			June 30,
	2017			2016
VAT provision	$	(575,872	)	$	2,218
Income tax payable		2,229,735			3,445,480
Other levies		1,036,544			656,520
Total	$	2,690,407		$	4,104,218

The provision for income taxes consists of the following:

	Years Ended June 30,
	2017		2016
Current tax - foreign	$	6,511,880	$	7,371,967
Deferred tax		-		-
	$	6,511,880	$	7,371,967

The components of deferred income tax assets and liabilities are as follows:

	June 30,			June 30,
	2017			2016
Deferred tax assets:
Net operating loss	$	14,607,802		$	13,803,943
Total deferred tax assets		14,607,802			13,803,943
Less valuation allowance		(14,607,802	)		(13,803,943	)
	$	-		$	-

The Company periodically evaluates the likelihood of the realization of deferred tax assets, and adjusts the carrying amount of the deferred tax assets by the valuation allowance to the extent the future realization of the deferred tax assets is not judged to be more likely than not. The Company considers many factors when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carryforward periods available to the Company for tax reporting purposes, and other relevant factors.

At June 30, 2017, based on the weight of available evidence, including cumulative losses in recent years and expectations of future taxable income, the Company determined that it was more likely than not that its deferred tax assets would not be realized and have a $14.6 million valuation allowance associated with its deferred tax assets.

Tax Rate Reconciliation

Our effective tax rates were approximately 20.6% and 21.6% for years ended June 30, 2017 and 2016, respectively. Substantially all the Company’s income before income taxes and related tax expense are from PRC sources. Actual income tax benefit reported in the consolidated statements of income and comprehensive income differ from the amounts computed by applying the US statutory income tax rate of 34% to income before income taxes for the years ended June 30, 2017 and 2016 for the following reasons:

June 30, 2017

Tax Rate Reconciliation

	China					United States
		15% - 25%					34%					Total

Pretax income (loss)	$	34,028,617				$	(2,364,584	)			$	31,664,033

Expected income tax expense (benefit)		8,507,154		25	%		(803,958	)	34	%		7,703,196
High-tech income benefits on Jinong		(2,033,489	)	-6.0	%							(2,033,489	)
Gains from subsidiaries in which additional benefit is recognized		38,215		0.1	%							38,215
Change in valuation allowance on deferred tax asset from US tax benefit		0					803,958		(34)	%		803,958
Actual tax expense	$	6,511,880		19.1	%	$	0		0	%	$	6,511,880		20.6	%

June 30, 2016

	China					United States
	15% - 25%					34%					Total

Pretax income (loss)	$	32,076,160					(5,768,770	)			$	26,307,390

Expected income tax expense (benefit)		8,019,040		25.0	%		(1,961,382	)	34.0	%		6,062,571
High-tech income benefits on Jinong		(2,214,672	)	(5.7	)%		-		-			(2,214,672	)
Losses from subsidiaries in which no benefit is recognized		1,567,599	)	(0.8	)%		-		-			1,567,599	)
Change in valuation allowance on deferred tax asset from US tax benefit		-					1,961,382		(34.0)	%		1,961,382
Actual tax expense	$	7,371,967		23	%	$	-		-	%	$	7,371,967		21.6	%