| 9. | Income tax expense |
Income tax expense in the consolidated statement of profit or loss consists of:
| 31.12.2015 | 31.12.2016 | 31.12.2017 | 31.12.2017 | |||||||||||||
| RMB’000 | RMB’000 | RMB’000 | US$’000 | |||||||||||||
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Current income tax |
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- Current year |
104,584 | 104,149 | 197,264 | 31,167 | ||||||||||||
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- (Over)/under provision in respect of prior years |
(47 | ) | 7,175 | (2,867 | ) | (453 | ) | |||||||||
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Deferred tax |
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- Movement in temporary differences |
72,281 | 48,946 | 25,770 | 4,071 | ||||||||||||
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Consolidated income tax expense reported in the statement of profit or loss |
176,818 | 160,270 | 220,167 | 34,785 | ||||||||||||
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Income tax expense reported in the consolidated statement of profit or loss differs from the amount computed by applying the PRC income tax rate of 15% (being tax rate of Yuchai) for the years ended December 31, 2017, 2016 and 2015 for the following reasons:
| 31.12.2015 | 31.12.2016 | 31.12.2017 | 31.12.2017 | |||||||||||||
| RMB’000 | RMB’000 | RMB’000 | US$’000 | |||||||||||||
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Accounting profit before tax |
686,138 | 883,878 | 1,625,237 | 256,776 | ||||||||||||
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Computed tax expense of 15% |
102,921 | 132,582 | 243,786 | 38,517 | ||||||||||||
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Adjustments resulting from: |
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Non-deductible expenses |
9,815 | 7,039 | 21,982 | 3,473 | ||||||||||||
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Tax-exempt income |
(5,574 | ) | (178 | ) | (58,324 | ) | (9,215 | ) | ||||||||
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Utilization of deferred tax benefits previously not recognized |
(2,001 | ) | (3,157 | ) | (7,374 | ) | (1,165 | ) | ||||||||
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Deferred tax benefits not recognized |
61,299 | 9,045 | 8,084 | 1,277 | ||||||||||||
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Tax credits for research and development expense |
(27,087 | ) | (34,482 | ) | (34,428 | ) | (5,439 | ) | ||||||||
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Tax rate differential |
24,249 | 25,321 | 21,061 | 3,328 | ||||||||||||
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(Over)/under provision in respect of previous years current tax |
(47 | ) | 7,175 | (2,867 | ) | (453 | ) | |||||||||
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Withholding tax expense |
13,126 | 16,925 | 29,447 | 4,652 | ||||||||||||
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Others |
117 | — | (1,200 | ) | (190 | ) | ||||||||||
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Total |
176,818 | 160,270 | 220,167 | 34,785 | ||||||||||||
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Deferred tax
Deferred tax relates to the following:
| Consolidated statement
of financial position |
Consolidated statement of profit or loss | |||||||||||||||||||||||||||
| 31.12.2016 | 31.12.2017 | 31.12.2017 | 31.12.2015 | 31.12.2016 | 31.12.2017 | 31.12.2017 | ||||||||||||||||||||||
| RMB’000 | RMB’000 | US$’000 | RMB’000 | RMB’000 | RMB’000 | US$’000 | ||||||||||||||||||||||
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Deferred tax liabilities |
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Accelerated tax depreciation |
(10,521 | ) | (15,122 | ) | (2,389 | ) | (10,852 | ) | 373 | (4,601 | ) | (727 | ) | |||||||||||||||
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Unremitted earnings from overseas source income |
(437 | ) | — | — | — | (25 | ) | — | — | |||||||||||||||||||
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Interest receivable |
(1,453 | ) | (774 | ) | (122 | ) | — | (1,471 | ) | 679 | 107 | |||||||||||||||||
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Derivatives not designated as hedges- foreign exchange forward contract |
— | — | — | (2,326 | ) | 2,326 | — | — | ||||||||||||||||||||
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PRC withholding tax on dividend income (i) |
(103,347 | ) | (100,572 | ) | (15,890 | ) | (12,549 | ) | (16,628 | ) | (29,031 | ) | (4,587 | ) | ||||||||||||||
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| (115,758 | ) | (116,468 | ) | (18,401 | ) | (25,727 | ) | (15,425 | ) | (32,953 | ) | (5,207 | ) | |||||||||||||||
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Deferred tax assets |
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Impairment of property, plant and equipment |
2,876 | 12,319 | 1,946 | 409 | (9,005 | ) | 9,443 | 1,492 | ||||||||||||||||||||
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Write-down of inventories |
21,209 | 17,493 | 2,764 | (3,867 | ) | (4,421 | ) | (3,716 | ) | (587 | ) | |||||||||||||||||
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Allowance for doubtful account receivables |
9,340 | 7,376 | 1,165 | (3,361 | ) | 7,196 | (1,964 | ) | (310 | ) | ||||||||||||||||||
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Accruals |
185,952 | 204,730 | 32,346 | 17,253 | (46,350 | ) | 18,778 | 2,967 | ||||||||||||||||||||
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Deferred income |
70,931 | 51,679 | 8,165 | (44,232 | ) | 10,045 | (19,252 | ) | (3,042 | ) | ||||||||||||||||||
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Write down of intangible asset |
— | — | — | (15,000 | ) | — | — | — | ||||||||||||||||||||
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Others |
17,899 | 21,793 | 3,443 | 2,244 | 9,014 | 3,894 | 616 | |||||||||||||||||||||
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| 308,207 | 315,390 | 49,829 | (46,554 | ) | (33,521 | ) | 7,183 | 1,136 | ||||||||||||||||||||
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| (72,281 | ) | (48,946 | ) | (25,770 | ) | (4,071 | ) | |||||||||||||||||||||
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Note:
| (i) |
The movement of PRC withholding tax on dividend income is as follows: |
| 31.12.2016 | 31.12.2017 | 31.12.2017 | ||||||||||
| RMB’000 | RMB’000 | US$’000 | ||||||||||
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At January 1 |
(113,805 | ) | (103,347 | ) | (16,328 | ) | ||||||
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Provision made to consolidated statement of profit or loss |
(16,628 | ) | (29,031 | ) | (4,587 | ) | ||||||
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Utilization |
27,107 | 31,806 | 5,025 | |||||||||
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Translation differences |
(21 | ) | — | — | ||||||||
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December 31 |
(103,347 | ) | (100,572 | ) | (15,890 | ) | ||||||
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The CIT law provides for a tax of 10% to be withheld from dividends paid to foreign investors of PRC enterprises. This withholding tax provision does not apply to dividends paid out of profit earned prior to January 1, 2008. Beginning on January 1, 2008, a 10% withholding tax is imposed on dividends paid to the Company, as a non-resident enterprise, unless an applicable tax treaty provides for a lower tax rate. The Company recognizes a deferred tax liability for withholding tax payable for profits accumulated after December 31, 2007 for the earnings that the Company does not plan to indefinitely reinvest in the PRC enterprises. As of December 31, 2017, the deferred tax liability for withholding tax payable was RMB 100,572 (US$15,890) (2016: RMB 103,347). The amount of unrecognized deferred tax liability relating to undistributed earnings of the PRC enterprises is estimated to be RMB 228,008 (US$36,024) (2016: RMB 212,176).
The following table represents the classification of the Group’s net deferred tax assets:
| 31.12.2016 | 31.12.2017 | 31.12.2017 | ||||||||||
| RMB’000 | RMB’000 | US$’000 | ||||||||||
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Deferred tax assets |
308,207 | 315,390 | 49,829 | |||||||||
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Deferred tax liabilities |
(115,758 | ) | (116,468 | ) | (18,401 | ) | ||||||
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| 192,449 | 198,922 | 31,428 | ||||||||||
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Deferred tax assets have not been recognized in respect of the following items:
| 31.12.2016 | 31.12.2017 | 31.12.2017 | ||||||||||
| RMB’000 | RMB’000 | US$’000 | ||||||||||
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Unutilized tax losses |
515,207 | 479,410 | 75,743 | |||||||||
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Unutilized capital allowances and investment allowances |
106,781 | 107,266 | 16,947 | |||||||||
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Other unrecognized temporary differences relating to provisions and deferred grants |
224,087 | 230,269 | 36,381 | |||||||||
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| 846,075 | 816,945 | 129,071 | ||||||||||
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Unrecognized tax losses for the Group are subject to agreement with the tax authorities and compliance with tax regulations in the respective countries in which the Group operates. These losses relate to subsidiaries that have a history of losses, expire within the next 5 years and may not be used to offset taxable income elsewhere in the Group. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profits will be available against which the Group can utilize the benefits.