Note 16– INCOME TAX

Cayman Islands

Hexindai Inc. was incorporated in the Cayman Islands and is not subject to income taxes or capital gain under current laws of Cayman Islands.

Hong Kong

HK Hexindai is an investment holding company registered in Hong Kong and exempted from income tax on its foreign‑derived income.

PRC

The Company’s subsidiaries and VIEs established in the PRC are subject to the PRC statutory income tax rate of 25%, according to the PRC Enterprise Income Tax (“EIT”) law. The Company’s VIE Hexin E‑Commerce has been granted as the “high technology enterprise” status in 2015 and is qualified to a preferred income tax rate of 15% since January 1, 2015. Horgos Qinhe and Horgos Bozhishuntai enjoy a preferred income tax rate of 0% for five years since inception, as they were incorporated in Horgos Economic District.

i) The components of the income tax expenses (benefit) are as follows:


	Year ended		Year ended		Year ended
	March 31, 2020		March 31, 2019		March 31, 2018
	USD		USD		USD
Current		683,828		5,596,753		10,610,067
Deferred		3,584,903		(3,724,081)		415,623

Total		4,268,731		1,872,672		11,025,690

All income taxes are related to income derived from the PRC during the years ended March 31, 2020, 2019 and 2018.

ii) The following table summarizes net deferred tax assets resulting from differences between financial accounting basis and tax basis of assets and liabilities:


	As of		As of
	March 31, 2020		March 31, 2019
	USD		USD
Advertising expenses		406,072		3,721,177
Provision for loan loss		3,987,604		271,056
Net operating loss carry forwards		3,077,622		5,683
Total deferred tax assets		7,471,298		3,997,916
Less: Valuation allowance		(7,471,298)		(276,739)
Total net deferred tax assets		—		3,721,177

The Company considers available evidence to determine whether some portion or all of the deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry forward periods, the Company’s experience with tax attributes expiring unused and tax planning alternatives. Valuation allowances have been established for deferred tax assets based on a more-likely-than-not threshold. The Company’s ability to realize deferred tax assets depends on its ability to generate sufficient taxable income within the carry forward periods provided for in the tax law. The Company has provided US$7,471,298 and US$276,739 valuation allowance for the years ended March 31, 2020 and 2019, respectively.

The following table reconciles the PRC statutory rates to the Company’s effective tax rate for the years ended March 31, 2020, 2019 and 2018.


	Year ended		Year ended		Year ended
	March 31, 2020		March 31, 2019		March 31, 2018
PRC Income tax statutory rate	25	%	25.0	%	25.0	%
Effect of tax holiday and preferential tax rate	(3.0)	%	(48.1)	%	(10.7)	%
Effect of withholding income tax	(28.4)	%	17.8	%	—
Non-deductible expenses and others			30.6	%	0.1	%
Effective tax rate	(6.4)	%	25.3	%	14.4	%

The authoritative guidance requires that the Company recognizes the impact of a tax position in the financial statements if that position is more likely than not of being sustained upon audit by the tax authority, based on the technical merits of the position. Under PRC laws and regulations, arrangements and transactions among related parties may be subject to examination by the PRC tax authorities. If the PRC tax authorities determine that the contractual arrangements among related companies do not represent a price under normal commercial terms, they may make adjustments to the companies’ income and expenses. A transfer pricing adjustment could result in additional tax liabilities.

The Company did not identify significant unrecognized tax benefits for the years ended March 31, 2020, 2019 and 2018.

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of income taxes is due to computational errors made by the taxpayer. The statute of limitations will be extended to five years under special circumstances, which are not clearly defined, but an underpayment of income tax liability exceeding US$14,123 (RMB100,000) is specifically listed as a special circumstance. In the case of a transfer pricing related adjustment, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.

Aggregate undistributed earnings of the Company’s PRC subsidiaries and VIEs that are available for distribution was approximately US$75 million and US$72 million as of March 31, 2020 and 2019 respectively.

In accordance with the EIT Law, dividends, which arise from profits of foreign invested enterprises (“FIEs”) earned after January 1, 2008, are subject to a 10% withholding income tax. In addition, under tax treaty between the PRC and Hong Kong, if the foreign investor is incorporated in Hong Kong and qualifies as the beneficial owner, the applicable withholding tax rate is reduced to 5%, if the investor holds at least 25% in the FIE, or 10%, if the investor holds less than 25% in the FIE. On July 19, 2018, the board of directors approved an annual dividend policy. Under this policy, annual dividends will be set at an amount equivalent to approximately 15-25% of the Company’s anticipated net income after tax in each year commencing from fiscal year ended March 31, 2019, which will be derived from the earnings of the Company’s PRC entities. On July 23, 2018, the board of directors declared an annual dividend for the fiscal year ended March 31, 2019 pursuant to the newly adopted annual dividend policy of US$0.27 per ordinary share (or US$0.27 per ADS). The aggregated dividend payments to shareholders derived from the earnings of the Company's PRC entities amounted to US$13.2 million for the year ended March 31, 2019. As a result, the Company incurred and paid withholding tax of US$1.3 million for the cash dividend during year ended March 31, 2019.

A deferred tax liability should be recognized for the undistributed profits of PRC subsidiaries unless the Company has sufficient evidence to demonstrate that the undistributed dividends will be reinvested and the remittance of the dividends will be postponed indefinitely. The Company plans to indefinitely reinvest undistributed profits earned from its China subsidiaries in its operations in the PRC. Therefore, no withholding income taxes for undistributed profits of the Company’s subsidiaries have been provided as of March 31, 2020 and 2019. Under applicable accounting principles, a deferred tax liability should be recorded for taxable temporary differences attributable to the excess of financial reporting basis over tax basis in a domestic subsidiary. However, recognition is not required in situations where the tax law provides a means by which the reported amount of that investment can be recovered tax-free and the enterprise expects that it will ultimately use that means. The Company completed its feasibility analysis on a method, which the Company will ultimately execute if necessary to repatriate the undistributed earnings of the VIE without significant tax costs. As such, the Company does not accrue deferred tax liabilities on the earnings of the VIE given that the Company will ultimately use the means.

The aggregate amount and per share effect of the tax holiday and preferential tax rate are as follows:


	Year ended	Year ended	Year ended
	March 31, 2020	March 31, 2019	March 31, 2018
	USD	USD	USD
The aggregate amount of tax holiday and preferential tax rate	—	2,642,450	8,157,429
The aggregate effect on basic and diluted net income per share:
- Basic	—	0.06	0.18
- Diluted	—	0.05	0.17