Income Tax

12 Months Ended

Mar. 31, 2023

Income Tax [Abstact]

INCOME TAX

NOTE 16 – INCOME TAX 

Jerash Garments, Jerash Embroidery, Chinese Garments, Paramount, Jerash the First, MK Garments, and Kawkab Venus are subject to the regulations of the Income Tax Department in Jordan. In accordance with the Investment Encouragement Law, Jerash Garments’ export sales to overseas customers were entitled to a 100% income tax exemption for a period of 10 years commencing on the first day of production. This exemption had been extended for five years until December 31, 2018. Effective January 1, 2019, the Jordanian government reclassified the area where Jerash Garments and its subsidiaries are to a Development Zone. In accordance with the Development Zone law, Jerash Garments and its subsidiaries were subject to income tax at income tax rate 16% plus a 1% social contribution between January 1, 2021 and December 31, 2021. The income tax rate increased to 18% or 20% plus a 1% social contribution starting from January 1, 2022. Effective January 1, 2023, the income tax rate increased to 19% or 20%, plus a 1% social contribution.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act imposed tax on previously untaxed accumulated earnings and profits (“E&P”) of foreign subsidiaries (the “Toll Charge”). The Toll Charge is based in part of the amount of E&P held in cash and other specific assets as of December 31, 2017. The Toll Charge can be paid over an eight-year period, starting in 2018, and will not accrue interest. Additionally, under the provisions of the Tax Act, for taxable years beginning after December 31, 2017, the foreign earnings of Jerash Garments and its subsidiaries are subject to U.S. taxation at the Jerash Holdings level under the new Global Intangible Low-Taxed Income (“GILTI”) regime.

Income tax payable consisted of the following:

	As of March 31, 2023		As of March 31, 2022
Income tax payable – current	$	2,846,201	$	2,861,272
Income tax payable – non-current		751,410		1,001,880
	$	3,597,611	$	3,863,152

The provision for income taxes consisted of the following:

	For the fiscal years ended March 31,
	2023			2022
Domestic and foreign components of income (loss) before income taxes
Domestic	$	(1,761,439	)	$	(2,508,655	)
Foreign		5,845,172			12,952,530
Total	$	4,083,733		$	10,443,875

	For the fiscal years ended March 31,
	2023			2022
Provision (benefit) for income taxes
Current tax:
U.S. federal	$	—		$	(147	)
U.S. state and local		750			700
Foreign		1,464,643			2,727,650
Total Current Tax		1,465,393			2,728,203
Deferred tax:
U.S. federal		198,717			(203,928	)
Total deferred tax		198,717			(203,928	)
Total tax	$	1,664,110		$	2,524,275
Effective tax rates		40.7	%		24.2	%

A reconciliation of the effective tax rate was as follows:

	For the fiscal years ended March 31,
	2023			2022
Tax at statutory rate	$	857,052		$	2,193,499
State tax, net of federal benefit		593			593
Non-deductible expenses		85,589			431
Non-taxable income		—			(474	)
Global Intangible Low-Taxed Income		846,116			1,783,313
Tax Credits		(558,642	)		(1,455,812	)
Foreign tax rate differential		237,688			159,053
Valuation Allowance		—			(151,246	)
Provision to return adjustments		195,714			(5,082	)
Total	$	1,664,110		$	2,524,275

The Company’s deferred tax assets and liabilities as of March 31, 2023 and 2022 consisted of the following:

Deferred tax assets	As of March 31, 2023			As of March 31, 2022
Stock-based compensation	$	154,227		$	352,590
Deferred tax liabilities		(354	)		—
Net operating losses carried forward		—			—
Less: valuation allowance		—			—
Deferred tax assets, net	$	153,873		$	352,590

Deferred tax assets are reduced by a valuation allowance when it is considered more likely than not that some portion or all of the deferred tax assets will not be realized. As of March 31, 2023 and 2022, the allowance for deferred tax assets was $nil. 

As of March 31, 2023, the Company had cumulative book-tax basis differences in its foreign subsidiaries of approximately $18.0 million. The Company has not recorded a U.S. deferred tax liability for the book-tax basis in its foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations. The reversal of this temporary difference would occur upon the sale or liquidation of the Company’s foreign subsidiaries, and the estimated impact of the reversal of this temporary difference is approximately $3.8 million.

The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to April 1, 2016.