TAXATION

9 Months Ended

Sep. 30, 2014

TAXATION [Text Block]

13. TAXATION

Taxes payable are composed of the following:

		September 30,		December 31,
		2014		2013
		(Unaudited)
VAT payable	$	627,026	$	617,708
Income tax payable		776,772		512,552
Other taxes payable		178,842		84,867
	$	1,582,640	$	1,215,127

The Company and its consolidated entities each file tax returns separately.

1) VAT

Pursuant to the Provisional Regulation of the PRC on VAT and the related implementing rules, all entities and individuals (“taxpayers”) that are engaged in the sale of products in the PRC are generally required to pay VAT at a rate of 17% of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayers. Further, when exporting goods, the exporter is entitled to apportion of or all the refund of VAT that it has already paid or incurred.

The Group’s PRC subsidiaries are subject to VAT at 17% for their revenues.

The deductible value added tax payable represents the VAT already paid or borne exceeded the VAT required to pay, amounting to US$1,023,534 and US$3,056,867 as of September 30, 2014 and December 31, 2013, respectively. The deductible VAT will be used to offset future VAT required to pay.

2) Income tax

United States

China Shengda Packaging is subject to United States tax at a tax rate of 34%. In nine months ended September 30, 2014 and the year ended December 31, 2013, the Company does not provide for U.S. income taxes on foreign subsidiaries’ undistributed earnings as they will be permanently reinvested in foreign operations.

BVI

Incorporated in BVI, Evercharm is governed by the income tax law of BVI. According to current BVI income tax law, the applicable income tax rate for Evercharm is 0%.

PRC

Great Shengda has obtained the approval and is qualified as New and High-Tech Enterprise (“NHTE”) by relevant government authorities in February 2014. According to the PRC Enterprise Income Tax Law, Great Shengdais eligible to enjoy a preferential tax rate of 15% for the calendar year of 2013, 2014 and 2015.

Shengda Color, Hangzhou Shengming, Suzhou AA and Shuangsheng are manufacturing domestic enterprises and are not entitled to any tax holiday. They were subject to income tax at a rate of 25% for calendar years 2013 and 2014. Shengda Concept is subject to income tax at a rate of 25% for calendar year 2014.

Under the Enterprise Income Tax Law, dividends, interests, rent, royalties and gains on transfers of property payable a foreign-invested enterprise in the PRC to their foreign investors who are a non-resident enterprises will be subject to a 20% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax.

The following table reconciles the Group’s effective tax for the periods presented:

		Three Months Ended September						Nine Months Ended September
		30,						30,
		2014			2013			2014			2013
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Expected enterprise income tax at statutory tax rate	$	363,406		$	167,907		$	850,765		$	704,277
Effect of preferential rate		(224,793	)		-			(535,408	)		-
Others		36,096			(6,686	)		39,155			-
Effective enterprise income tax	$	174,709		$	161,221		$	354,512		$	704,277

The significant components of income tax expense are as follows:

		Three Months Ended September						Nine Months Ended September
		30,						30,
		2014			2013			2014			2013
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Current tax expenses	$	614,040		$	518,445		$	1,520,347		$	1,362,170
Deferred tax benefits		(439,331	)		(357,224	)		(1,165,835	)		(657,893	)
Income tax expenses	$	174,709		$	161,221		$	354,512		$	704,277

Deferred tax assets and deferred tax liabilities reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purpose and the tax bases used for income tax purpose. The following represents the tax effect of each major type of temporary difference:

		September 30,		December31,
		2014		2013
		(Unaudited)
Net operating loss carried forward	$	2,421,685	$	1,215,612
Effect of deductible temporary differences between assigned value of property, plant and equipment and their tax bases in a business combination		237,658		290,369
Total deferred tax assets	$	2,659,343	$	1,505,981

Shuangsheng, one of the Group's subsidiaries, incurred a pretax loss of approximately US$9.7 million since its paper mill officially went into production in June 2013, which resulted in the increase of net operating loss carried forward. The net operating loss carry forwards will expire if unused in the years ending December 31, 2018 through 2019.