The government has proposed a two-year roadmap to phase out the raft of direct tax incentives companies actively leverage to lower their effective tax rate. If that happens, there are three sets of companies that will be the most impacted.

Companies with a profit before tax of above R500 crore, which account for 60% of India Inc’s profits, pay tax of about 6 percentage points less than their counterparts at the other end and about two-thirds of the average statutory tax rate.

Along with phasing out direct tax incentives, the government has indicated reducing the statutory tax rate from 30% (excluding surcharge and cess) to 25%.

Several sectors already pay below 25%, more so manufacturing than services.

Potential loser set 3: fast depreciators, sezs and occupants, power companies...

About 95% of direct tax revenue currently foregone by the government is on account of 10 clauses. These relate to companies that make certain choices in unit location, depreciation policy, choice of businesses and research expenditure, and will impact their taxes in a scenario where these incentives no longer exist.