NOTE 16. INCOME TAX

The Company is not subject to any income taxes in the United States or the Cayman Islands and had minimal operations in jurisdictions other than the PRC. BHD and Nanjing Recon are subject to PRC’s income taxes as PRC domestic companies. The Company follows Implementing Rules for the Enterprise Income Tax Law (“Implementing Rules”), which took effect on January 1, 2008 and unified the income tax rate for domestic-invested and foreign-invested enterprises at 25%.

Nanjing Recon was approved as a government-certified high technology company on December 11, 2013 and is subject to a reduced income tax rate of 15% through December 11, 2016. Nanjing Recon reapplied for high-technology enterprise approval and has passed all relevant reviews. Thus, for the calendar years 2014 and 2015, Nanjing Recon is subject to an income tax rate of 15%.

As approved by the domestic tax authority in the PRC, BHD was recognized as a government-certified high technology company on November 25, 2009 and is subject to a reduced income tax rate of 15% through November 2015. BHD reapplied for high-technology enterprise approval and successfully got the approval on November 25, 2015. Thus, the valid date of BHD’s high-technology enterprise certificate is extended to November 25, 2018.

Loss before provision for income taxes consisted of:

	June 30, 2015		June 30, 2016		June 30, 2016
	RMB		RMB		U.S. Dollars
Cayman Island and other areas	¥	(8,872,589)	¥	(14,257,066)	$	(2,145,749)
China		(25,135,874)		(26,079,666)		(3,925,101)
Total	¥	(34,008,463)	¥	(40,336,732)	$	(6,070,850)

Deferred tax asset is comprised of the following:

	June 30, 2015		June 30, 2016		June 30, 2016
	RMB		RMB		U.S. Dollars
Allowance for doubtful receivables	¥	1,072,279	¥	1,958,120	$	294,705
Net operating loss carry forward		669,819		1,790,615		269,495
Less: Valuation allowance		-		(3,748,735)		(564,200)
Total deferred income tax assets	¥	1,742,098	¥	-	$	-

Deferred tax liability is comprised of the following:

	June 30, 2015		June 30, 2016		June 30, 2016
	RMB		RMB		U.S. Dollars
Income tax cost due to unpayable accounts	¥	180,186	¥	180,186	$	27,119
Total deferred income tax liability	¥	180,186	¥	180,186	$	27,119

Following is a reconciliation of income tax at the effective rate to income tax at the calculated statutory rates:

	For the year ended June 30, 2015		For the year ended June 30, 2016		For the year ended June 30, 2016
	RMB		RMB		U.S. Dollars

Income tax calculated at statutory rates	¥	(6,108,744)	¥	(6,230,384)	$	(937,699)
Nondeductible expenses (non-taxable income)		5,335,231		1,774,956		267,138
Benefit of favorable rate for high-technology companies		385,650		2,492,154		375,080
Benefit of revenue exempted from enterprise income tax		(190,614)		(43,363)		(6,526)
Deferred income tax		137,683		3,748,735		564,200
Over-accrued tax of prior year and others		(2,111,281)		(1,196,253)		(180,041)
Provision (benefit) for income tax	¥	(2,552,075)	¥	545,845	$	82,152

The Company’s tax provision is comprised of the following:

	For the years ended June 30,
	2015		2016		2016
	RMB		RMB		U.S. Dollars
Current income tax provision	¥	(2,019,938)	¥	-	$	-
Adjust over accrued tax of prior years		-		(1,196,253)		(180,041)
Deferred income taxes provision (benefit)		(532,137)		1,742,098		262,193
Provision (benefit) for income tax	¥	(2,552,075)	¥	545,845	$	82,152

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Recon Technology, Ltd Income Taxes Disclosure

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