Annual and transition report of foreign private issuers pursuant to Section 13 or 15(d)

INCOME TAXES

v3.21.4
INCOME TAXES
12 Months Ended
Sep. 30, 2021
INCOME TAXES  
INCOME TAXES

NOTE 20 – INCOME TAXES

As of September 30, 

    

2021

    

2020

    

2019

Deferred tax assets:

 

  

 

  

 

  

Bad debt allowance recorded for accounts receivable

$

333,280

$

303,056

$

289,756

Inventory provision

 

16,952

 

16,087

 

Net operating loss carry-forward

690,882

539,354

159,219

Less: valuation allowance

 

(687,654)

 

(133,885)

 

(159,219)

Total

$

353,460

$

724,612

$

289,756

Deferred income taxes reflect the net effects of temporary difference between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. The Company’s deferred tax assets as of September 30, 2021, 2020 and 2019 were $353,460, $724,612, and $289,756, respectively, which were mainly derived from the temporary difference from

provision of doubtful accounts and net operating loss carry forward of Wenzhou Zhengfeng with effective period from October 01, 2018 to September 30, 2023. The Company evaluated 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.

Income taxes for the years ended September 30, 2021 and 2020 are attributed to the Company’s continuing operations in China and consisted of:

For the year ended September 30, 

    

2021

    

2020

    

2019

Current

$

(958,210)

$

(1,021,565)

$

250,186

Deferred

 

406,064

 

(406,637)

 

(1,958)

Total

$

(552,146)

$

(1,428,202)

$

248,228

Per the consolidated statements of operations and comprehensive income, the income tax expenses for the Company can be reconciled to the income before income taxes for the years ended September 30, 2021 and 2020 as follows:

For the year ended September 30, 

    

2021

    

2020

    

2019

 

Income before taxes excluded the amounts of loss incurring entities

$

$

8,979,640

PRC EIT tax rates

 

15

%  

 

15

%  

 

15

%

Tax at the PRC EIT tax rates

 

 

 

1,346,946

Tax effect of 75% (50% for 2018 and 2017) R&D expenses deduction

 

 

 

(163,357)

Tax effect of deferred tax recognized

 

406,064

 

(406,637)

 

(1,958)

Tax effect of non-deductible expenses

 

 

 

18,307

Change in unrecognized tax benefits

(958,210)

(1,021,565)

(951,710)

Income tax expense (recovery)

$

(552,146)

$

(1,428,202)

248,228

Under the Law of the People’s Republic of China on Enterprise Income Tax ("New EIT Law"), which was effective from January 1, 2008, both domestically- owned enterprises and foreign-invested enterprises are subject to a uniform tax rate of 25%.

Zhejiang Zhengkang was entitled High and New Technology Enterprise ("HNTE") and enjoyed preferential tax rate of 15% for a three-year validity period from April 16, 2009. And the HNTE certificate was renewed on October 29, 2012, September 17, 2015 and September 17, 2018 all with a three-year validity period respectively. Thus, Zhejiang Zhengkang is eligible for a 15% preferential tax rate from April 16, 2009 to September 16, 2021.

ZK International and xSigma Corporation is not subject to income taxes under the current laws of BVI. ZK Pipe was registered in Hong Kong and is subject to corporate income tax at 16.5% if revenue is generated in Hong Kong. Wenzhou Zhengfeng and Wenzhou Weijia were both registered in the PRC and have applicable EIT rate of 25%. ZK Uganda was registered in the Republic of Uganda and is subject to corporate income tax at 30% if revenue is generated in Uganda.

Due to the Company's status as a public company, the Company is able to negotiate with local PRC taxing authorities a reduction to certain amounts that such authorities may believe are due and a reduction to any interest or penalties thereon. To the extent our Company is able to negotiate such amounts, national-level taxing authorities may take the position that localities are without power to reduce such liabilities, and such PRC taxing authorities may attempt to collect the unpaid taxes. The PRC tax law provides statute of limitations of 3 years to collect unpaid taxes. The Company recognizes the portion of unrecognized tax benefit that is beyond 3 years as reduction of its tax liabilities due to the fact that the statute of limitations for the relevant taxing authorities to examine and challenge the tax position has expired.

The changes in unrecognized tax benefits are as follows:

For the year ended September 30,

    

2021

    

2020

    

2019

Balance at beginning period

$

3,188,615

$

4,176,537

$

4,098,783

Addition for tax positions of the current year

 

(37,407)

 

(154,041)

 

993,194

Lapse of statute of limitations

 

(967,698)

 

(1,054,163)

 

(915,440)

Effect of exchange rate changes

171,322

220,281

Balance at ending period

$

2,354,832

$

3,188,615

$

4,176,537

As of September 30, 2021, the Company had unrecognized tax benefits of $2,354,832 and such balance was included in "income tax payable" account. For the fiscal years 2021, 2020 and 2019, no tax authority initiated tax examination against the Company and the Company was issued Certificate of No Tax Arrears on December 9, 2020 by local tax authority which indicates the Company has fully paid income taxes for its tax returns since January 01, 2017. The reasonable possible change on the Company's unrecognized tax benefits in the next 12 months ranges from RMB nil to RMB 9,360,974.