Senmiao Technology Ltd Income Taxes Disclosure

13. INCOME TAXES 

 

The United States of America

 

The Company is incorporated in the State of Nevada in the U.S., and is subject to U.S. federal corporate income taxes with tax rate of 21%. The State of Nevada does not impose any state corporate income tax.

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The Tax Act also established the Global Intangible Low-Taxed Income (GILTI), a new inclusion rule affecting non-routine income earned by foreign subsidiaries. For the years ended March 31, 2025 and 2024, the Company’s foreign subsidiaries in China were operating at loss and as such, did not record a liability for GILTI tax.

 

The Company’s net operating loss for U.S. income taxes from U.S amounted to approximately $0.9 million and $1.1 million for the years ended March 31, 2025 and 2024, respectively. As of March 31, 2025 and 2024, the Company’s net operating loss carryforward for U.S. income taxes was approximately $7.9 million and $7.6 million, respectively. The net operating loss carryforward will not expire and is available to reduce future years’ taxable income but limited to 80% of income until utilized. Management believes that the utilization of the benefit from this loss appears uncertain due to the Company’s operating history. Accordingly, the Company has recorded a 100% valuation allowance on the deferred tax asset to reduce the deferred tax assets to zero on the consolidated balance sheets. As of March 31, 2025 and 2024, valuation allowances for deferred tax assets for US income taxes were approximately $1.7 million and $1.6 million, respectively. Management reviews the valuation allowance periodically and makes changes accordingly.

 

PRC

 

Senmiao Consulting, Sichuan Senmiao Ronglian Technology Co., Ltd. (“Sichuan Senmiao”), Hunan Ruixi, Sichuan Senmiao Yicheng Assets Management Co., Ltd. (“Yicheng”), Corenel, and Jiekai are subject to PRC Enterprise Income Tax (“EIT”) on the taxable income in accordance with the relevant PRC income tax laws. The EIT rate for companies operating in the PRC is 25%.

Net loss before income tax by jurisdiction as follows:

 

		For the Years Ended
		March 31,
		2025				2024
U.S.		$	(773,780	)		$	(1,436,096	)
PRC			(2,693,385	)			(2,397,904	)
Total net loss before income tax		$	(3,467,165	)		$	(3,834,000	)

 

For the years ended March 31, 2025, the Company had no current tax expense or deferred tax expense, while the Company had current tax expense of $20,206 and no deferred tax expense for the year ended March 31, 2024.

 

Below is a reconciliation of the statutory tax rate to the effective tax rate:

 

		For the Years Ended
		March 31,
		2025				2024
PRC Statutory tax rate*			25.0	%			25.0	%
Differential of local statutory tax rate			(0.9	)%			(1.5	)%
Permanent difference of gain from change in fair value of derivative liabilities not taxable in PRC			1.2	%			1.2	%
Non-deductible expenses			(2.1	)%			(3.2	)%
Valuation allowance on deferred income tax asset			(73.3	)%			(21.5	)%
Equity investment loss			50.1	%			—	%
Others			—	%			(0.5	)%
Effective tax rate			—	%			(0.5	)%

 

*

As the Company business operation mainly concentrated PRC, the Company determined to apply PRC statutory tax rate in reconciliation of the statutory tax rate to the effective tax rate

 

As of March 31, 2025 and 2024, the Company’s PRC entities from continuing operations had net operating loss carryforwards of approximately $11.2 million and $3.9 million, respectively, which will be available to offset future taxable income. As of March 31, 2025, these carryforwards will expire from 2026 through 2030, if not used. As of March 31, 2025 and 2024, valuation allowances for deferred tax assets for PRC income taxes were approximately $4.1 million and $1.8 million, respectively. With the consideration of the duration of statutory carry forward periods and forecasts of future profitability, it has concluded that it is more likely than not that all its deferred tax assets generated from the Company would not be utilized in the future. The Company has provided full allowance of its deferred tax assets.

 

The tax effects of temporary differences from continuing operations that give rise to the Company’s deferred tax assets and liabilities are as follows:

 

		March 31,				March 31,
		2025				2024
Deferred Tax Assets
Net operating loss carryforwards in the PRC		$	2,797,877			$	976,138
Net operating loss carryforwards in the U.S.			1,667,423				1,588,529
Allowance for credit losses			1,324,308				807,974
Others			6,398				6,431
Less: valuation allowance			(5,796,006	)			(3,379,072	)
Deferred tax assets, net		$	—			$	—

 

As of March 31, 2025 and 2024, the Company’s PRC entities associated with discontinued operations had net operating loss carryforwards of approximately $0.3 million and $0.9 million, respectively. Despite the fact that the net operating loss carryforwards arose from the Company discontinued operation, the Company may still benefit from them as potential deduction against future taxable income. As of March 31, 2025, such net operating loss from discontinued operations will expire in 2026, if not used. The Company reviews deferred tax assets for a valuation allowance based upon whether it is more likely than not that the deferred tax asset will not be fully realized. As of March 31, 2025 and 2024, full valuation allowance is provided against the deferred tax assets related to the Company’s discontinued operations based upon management’s assessment as to their realization.

The tax effects of temporary differences from discontinued operations that give rise to the Company’s deferred tax assets are as follows:

 

		March 31, 2025				March 31, 2024
Net operating loss carry forwards in the PRC		$	77,782			$	228,268
Less: valuation allowance			(77,782	)			(228,268	)
Total		$	—			$	—

 

Uncertain tax positions

 

The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of March 31, 2025 and 2024, the Company did not have any unrecognized uncertain tax positions and the Company does not believe that its unrecognized tax benefits will change over the next twelve months. For the years ended March 31, 2025 and 2024, the Company did not incur any interest and penalties related to potential underpaid income tax expenses. According to PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or withholding agent. The statute of limitations will be extended five years under special circumstances, which are not clearly defined (but an underpayment of tax liability exceeding RMB0.1 million is specifically listed as a special circumstance). In the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.