Income Taxes

12 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

Note 12. INCOME TAXES

On December 22, 2017, the U.S. enacted the Tax Act. Under the provisions of the Tax Act, the U.S. corporate tax rate decreased from 35% to 21%. Since the Company has a June 30 fiscal year-end, a blended U.S. statutory federal rate of approximately 28% for the fiscal year ended June 30, 2018 was applied to the provision for income tax and a 21% rate for subsequent fiscal years. The Tax Act also created a new requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income (GILTI), must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. For the year ended June 30, 2019, the Company elected to treat the tax effect of GILTI as a current-period expense when incurred.

As of June 30, 2019, the Company re-measured its deferred tax assets based on the current effective rate of 21% at which these deferred tax amounts are expected to reverse in the future.

The Company's income tax expense for the years ended June 30, 2019 and 2018 are as follows:

	For the Years Ended June 30,
	2019			2018
Current
U.S.	$	(33,113	)	$	(120,448	)
Hong Kong		(2,792	)		(91,545	)
PRC		(250,464	)		(622,765	)
		(286,369	)		(834,758	)
Deferred
U.S.		(634,500	)		(114,901	)
PRC		-			-
Total income tax expense	$	(920,869	)	$	(949,659	)

  
Income tax expense for the years ended June 30, 2019 and 2018 varied from the amount computed by applying the statutory income tax rate to income before taxes. Reconciliations between the expected federal income tax rates using 21% for the year ended June 30, 2019 and a blended rate of 28% for the year ended June 30, 2018 to the Company's effective tax rate are as follows:

	June 30, 2019			June 30, 2018
	%			%
US Statutory tax rate		21.0			28.0
Permanent difference*		5.1			70.4
Change in valuation allowance		(40.2	)		(28.9	)
Rate differential in foreign jurisdiction		(1.0	)		(5.0	)
		(15.1	)		64.5

* Permanent difference includes non-deductible stock compensation expenses and transition tax.

The Company's deferred tax assets are comprised of the following:

	June 30, 2019			June 30, 2018
Allowance for doubtful accounts	$	1,121,000		$	540,000
Net operating loss		1,024,000			355,000
Total deferred tax assets		2,145,000			895,000
Valuation allowance		(2,145,000	)		(260,500	)
Deferred tax assets, net - long-term	$	-		$	634,500

The Company's operations in the U.S. incurred a cumulative pre-2017 NOL of approximately $1,421,000 as of June 30, 2018 which may reduce future federal taxable income. The NOL will expire in 2037 for the net operating losses generated prior to the year ended June 30, 2019. During the year ended June 30, 2019, approximately $2,744,000 of additional NOL was generated. As a result of approximately $384,000 of GILTI as taxable income, the current year's net operating loss was reduced to approximately $2,360,000 for the year ended June 30, 2019. For the year ended June 30, 2019, the tax benefit as a result of the use of the NOL for GILTI tax was approximately $81,000 leaving the Company with a cumulative NOL of approximately $3,781,000 which may reduce future federal taxable income, of which approximately 1,421,000 will expire in 2037 and the remaining balance carried forward indefinitely.

The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that could affect the Company's future realization of deferred tax assets including its recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes and other relevant factors. The Company determined that it is more likely than not its deferred tax assets could not be realized due to uncertainty on future earnings as a result of the deterioration of trade negotiation between US and China in 2019. The Company provided a 100% allowance for its DTA as of June 30, 2019. The net increase in valuation for the year ended June 30, 2019 amounted to approximately $1,884,500 based on management's reassessment of the amount of the Company's deferred tax assets that are more likely than not to be realized.

The Company's taxes payable consists of the following:

	June 30,		June 30,
	2019		2018
VAT tax payable	$	1,045,513	$	531,337
Corporate income tax payable		2,075,248		2,104,232
Others		64,134		65,050
Total	$	3,184,895	$	2,700,619