FINANCIAL SECTION Notes to Consolidated Financial Statements 11. Income Taxes The Group is subject to a number of different income taxes. The statutory tax rates in Japan for the year ended March 31, 2002, 2003 and 2004 were approximately 42% in the aggregate. The components of income taxes are as follows: The reconciliations between applicable statutory income tax and the effective income tax rate for the year ended March 31, 2002, 2003 and 2004 are as follows: The significant components of deferred tax assets and liabilities at March 31, 2003 and 2004 were as follows: 48 Yen U.S. Dollars (millions) (thousands) At March 31 2003 2004 2004 Deferred tax assets: Tax loss carryforwards · 455,928 · 402,881 $ 3,800,764 Accrued retirement benefits 229,780 189,402 1,786,811 Accrued employee benefits 32,766 35,949 339,142 Provision for loss on repurchase of computers 19,894 19,645 185,330 Intercompany profit on inventory and property, plant and equipment  9,104 10,106 95,340 Other 56,051 62,132 586,151 Gross deferred tax assets 803,523 720,115 6,793,538 Less: Valuation allowance on tax loss carryforwards (226,956) (204,111) (1,925,576) Other valuation allowance (21,685) (13,610) (128,396) Total valuation allowance (248,641) (217,721) (2,053,972) Total deferred tax assets 554,882 502,394 4,739,566 Deferred tax liabilities: Gains from establishment of stock holding trust for retirement benefit plan ·(206,699) ·(206,699) $(1,949,990) Unrealized gains on securities  (1,906) (102,552) (967,472) Retained earnings appropriated for tax allowable reserves (8,074) (10,816) (102,038) Other (1,639) (2,060) (19,434) Gross deferred tax liabilities (218,318) (322,127) (3,038,934) Net deferred tax assets · 336,564 · 180,267 $ 1,700,632 Statutory Income tax rate 42.0% 42.0% 42.0% Increase (Decrease) in tax rate: Tax effect on prior losses of subsidiaries 6.2% GLYPH<209> (72.5%) Valuation allowance for deferred tax assets (12.0%) (10.1%) 53.2% Adjustment of net gain on sale of investments in subsidiaries and affiliated companies GLYPH<209> GLYPH<209> 26.6% Amortization of goodwill (1.0%) (5.0%) 8.1% Non-deductible expenses for tax purposes (0.5%) (2.1%) 1.7% Tax effect on equity in earnings of affiliates, net  0.2% 0.2% (1.1%) Non-taxable income 0.3% 3.1% (0.6%) Effect of change in statutory tax rate GLYPH<209> (8.2%) — Other (1.7%) (0.4%) 1.3% Effective income tax rate 33.5% 19.5% 58.7% Yen U.S. Dollars (millions) (thousands) Years ended March 31 2002 2003 2004 2004 Current · 35,122 · 36,188 · 34,125 $ 321,934 Deferred (234,542) (77,015) 58,085 547,972 Effect of change in statutory tax rate GLYPH<209> 12,038 — — Income taxes ·(199,420) · (28,789) · 92,210 $ 869,906