Noting that tax exemptions cost the exchequer ₹2 lakh crore annually, Revenue Secretary Hasmukh Adhia indicated that the Centre will announce a final roadmap for rationalising corporate tax exemptions in the Union Budget 2016-17.

“We had issued the draft roadmap, it will be finalised by the time of the Budget,” he said.

Along with tax rationalisation and simplification, Adhia said the focus of the Budget will be to promote growth and employment and provide a level playing field to domestic manufacturers for the Make in India campaign.

While tax exemptions can’t be completely eliminated, Adhia said there is a need to rationalise them so that they can translate into lower tax rates.

“Tax exemptions create inequity between new and old units, smaller and bigger companies, manufacturing and services and financial sector companies,” he said.

The Centre loses about ₹1 lakh crore from direct tax exemptions annually and an equal amount from indirect tax exemptions to export oriented units and special economic zones among others. “If we rationalise exemptions, the tax to GDP ratio will also go up from the current ratio of 10,” Adhia said.

Following Finance Minister Arun Jaitley’s proposal in the Union Budget 2015-16 to lower corporate tax rate to 25 per cent over the next four years, the Central Board of Direct Taxes (CBDT) on November 20 had released a draft proposal suggesting that all profit-linked, investment-linked and area-based deductions for both corporate and non-corporate taxpayers would be phased out.

Meanwhile, even as the Income Tax department has sent a tax reminder to telecom firm Vodafone to pay ₹14,200 crore, Adhia said that it is necessary to provide predictability and certainty in tax regime to foreign investors. The goods and services tax would be another measure to attract investors, he said, adding that all administrative preparations have been done for its roll out.

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