Income and Other Taxes

9 Months Ended

Sep. 30, 2011

13. Income and Other Taxes

a. Corporation Income Taxes (“CIT”)

The Company will file a federal consolidated income tax return with its US subsidiary and state franchise tax individually with the State of Nevada. The Company’s PRC subsidiaries file income tax returns under the Income Tax Law of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and local income tax laws.

In accordance with the relevant tax laws and regulations of the PRC, CHFY is entitled to full exemption from CIT for the first two years and a 50% reduction in CIT for the next three years, commencing from the first profitable year after offsetting all tax losses carried forward from the previous five years. As 2007 was the Company’s first profitable year, CHFY was entitled to a full exemption from CIT for the years 2007 and 2008. Commencing from January 2009, CHFY had begun to be charged CIT at a 15% rate

In accordance with the relevant PRC tax laws and regulations, the Company’s PRC subsidiary, Zhonghao Bio, is subject to CIT at 25%.

The deferred income tax assets result from impairment of investment and are deductible when the actual loss on investment is incurred.

The components of the provisions for income taxes were as follows for the three months and nine months ended September 30, 2011 and 2010:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2011 (Unaudited)		2010 (Unaudited)			2011 (Unaudited)		2010 (Unaudited)

Current taxes:
Current income taxes in the PRC	$	32,471	$	352,990		$	289,127	$	713,514
Deferred income taxes benefits				(63,164	)				(148,710	)
Total provision for income taxes	$	32,471	$	289,826		$	289,127	$	564,804

The following is a reconciliation of tax computed by applying the statutory income tax rate to PRC operations to income tax expenses for the three months and nine months ended September 30, 2011 and 2010 respectively:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011 (Unaudited)			2010 (Unaudited)			2011 (Unaudited)			2010 (Unaudited)
PRC statutory tax rate		25	%		25	%		25	%		25	%
Accounting (loss) income before tax	$	(5,999,410)		$	2,238,460		$	(4,481,645)		$	4,211,497
Computed expected income tax expenses		—			559,615			—			1,052,874
Loss from subsidiaries		32,471			—			289,127			—
Less: tax exemption		—			269,789			—			488,070
Income tax expenses	$	32,471		$	289,826		$	289,127		$	564,804

b. Value Added Tax (“VAT”)

The Company’s PRC subsidiary, CHFY, is subject to VAT of 17% on merchandises sales in the PRC. Since the CHFY is located in Heilongjiang province and classified as a Hi-Tech Manufacturing Company, the China National Tax Authority had authorized CHFY to offset the VAT tax paid for purchasing equipment and machineries with the regular VAT tax collected from sales products of CHFY. This authorization began in December 2007.

The Company’s PRC subsidiary, Zhonghao Bio, is classified as a small-scale tax payer which is subject to VAT of 3% on merchandise. Zhonghao Bio has commenced its production in March 2011 and its sales in May 2011.

c. Taxes Payable

As of September 30, 2011 and December 31, 2010, taxes payable consisted of the following:

	September 30,		December 31,
	2011		2010
	(Unaudited)
Value-added taxes	$	65,275	$	377,066
Income taxes payable		47,625		360,043
Individual income taxes withholdings		1,118		1,538
Total	$	114,018	$	738,647

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

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-Name Accounting Standards Codification

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Reference 2: http://www.xbrl.org/2003/role/presentationRef

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

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-Paragraph 43, 44, 45, 46, 47, 48, 49

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Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Regulation S-X (SX)

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Reference 5: http://www.xbrl.org/2003/role/presentationRef

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-Name Accounting Standards Codification

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+ Details

CHINA GREEN MATERIAL TECHNOLOGIES, INC. 10-Q