Finance minister Arun Jaitley may start with just token measures to phase out corporate tax exemptions in the Budget for FY17 but may nevertheless drop the corporate tax rate by one percentage point. While speaking to businesspersons in Pune on Saturday, the finance minister reiterated the government\u2019s resolve to usher in a \u201creasonable and globally-competitive tax regime\u201d. I will try to bring down corporate tax to 25% in next 3-4 years, and the process of reduction will start next year,\u201d Jaitley said. According to the finance ministry officials, the big tax breaks may be scrapped only towards the end of the four-year road map announced in last February. The idea is to soften the blow to corporates at a time when the government\u2019s policy priority is to turn the investment cycle. The corporate tax rate (for domestic companies) was left unchanged at 30% in the last Budget but while presenting it, Jaitley had said that given the rate being higher than the ones prevalent in other major Asian economies, it would be reduced to 25% \u201cover the next four years\u201d. He, however, added that rate cut would be accompanied by \u201crationalisation and removal of various kinds of tax exemptions and incentives\u201d. Sources conversant with the budget discussions in the ministry told FE that major incentives like deduction of export profits for SEZ units, accelerated depreciation and weighted deduction of R&D expenses would continue to exist for another two to three years. The date for the gradual phase-out or grandfathering of these incentives would be aligned with the end of the four-year transition period mentioned by Jaitley, or even get delayed by a another year or so. The revenue foregone on these three incentives was 65% of the revenue loss of Rs 98,408 crore attributable to tax exemptions in FY15. The finance ministry looks to defer the removal of major tax sops because it feels that given the stuttering economy, the corporates which have been prodded to step up investments, should not be troubled with the prospect of higher tax outgo at this juncture. \u201cThe pace of economic recovery in last quarter of the current fiscal would be more or less known at the time the budget FY17 is finalised. It would indeed influence the plan for removing exemptions. Large tax breaks are anyway not likely to be removed immediately,\u201d said a person briefed about the plan. With the incentives, the average effective tax rate for corporates is around 23% at present. Accelerated depreciation allowed under Section 32 is projected to have cost the exchequer Rs 37,010 crore last fiscal, but its removal is low on priority, sources said, considering its short-term impact on investments. So is the case with weighted deduction for scientific research under Section 35 that cost the exchequer\u00a0 Rs 8,127 crore last fiscal. The incentives identified for withdrawal during the four-year period include open-ended ones for which no end date is specified in the Income Tax Act as well as other multi-year tax sops. The latter category of sops, for sure, will not be extended further, the sources said, adding that in case of open-ended ones, terminal dates would be announced. In case of the tax concessions for SEZ developers and units, the most prominent among open-ended sops, the terminal date (for joining the scheme) would likely be the final year of the Modi government. This means that the concessions, as prescribed under the SEZ Act, would be available for 15 years from that year for SEZ developers and units. Direct tax breaks to SEZ touched Rs 18,394 crore last fiscal, if 18.5% MAT recovered is not taken into consideration. Another open-ended incentive scheme identified for late withdrawal is section 35AD that allows full or partial deduction of capital expenditure incurred in setting up cross-country natural gas pipelines, hotels, affordable houses, semi-conductor wafer factories, fertilizer plants and container freight stations. The projected revenue forgone for the last fiscal on this count stood at Rs 1,138 crore. Various incentives given under sections 80IA, 80IAB and 80IB are also identified for phasing out. Some of these for which terminal dates are already announced, cover deduction of profits from certain industrial, infrastructural and other specified businesses while calculating the taxable profits of a company. While companies developing roads, ports, highways and SEZs enjoy full deduction of profits from these ventures for ten years under section 80IA without an end date specified in the law, most of the deductions allowed under 80IB for opening hotels and convention centres and for producing and refining mineral oil have expired recently but the beneficiaries continue to enjoy it for the remaining period. The government is unlikely to disallow the benefit for the remaining period. Benefits for industrial units in J&K too expired in 2012. The five-year full deduction of profits from North East units under section 80IE scheduled to end in 2017 is also identified among the exemptions to be removed. The final call, however, is likely to be a political one in the light of how the economy performs. Under the SEZ Act, developers of these zones are eligible for 100% profit deduction for any consecutive 10 years in a span of 15 years. As for SEZ units, the entire profits can be deducted for the first five years, followed by 50% deduction for the next ten years.