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Why 25% is actually more than 33% in case of corporate tax

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Companies operating across more than 35 industries pay taxes at an effective rate of less than 25% and large companies pay taxes at a lower rate compared to smaller firms. In addition, the overall effective tax rate is only around 23.2% against the statutory tax rate of 32-34%.
These are some of the reasons why the government is eager to phase out exemptions. Indeed, this will mean that despite a reduction in tax rates to 25%, its tax revenue will see an increase.
In line with the budget announcement by finance minister Arun Jaitley of gradually reducing corporate tax rates to 25% from 30%, the government on Friday released a draft roadmap for phasing out corporate tax exemptions in the next two years.
The phasing out of these exemptions is expected to impact fresh investments into SEZs, research and development as well as hit profit of companies operating in sectors such as infrastructure, IT, natural gas explorers and pharmaceuticals. All such investments currently get tax sops or incentives.
The roadmap focuses on rationalising exemptions such as those given to aid scientific expenditure, capital expenditure and the benefits of accelerated depreciation.
According to the revenue foregone statement that is part of the budget document, while effective tax rate for firms reporting a profit before tax of ` 500 crore or more is 21%, it is over 26% for small units reporting a profit before tax of ` 1 crore or less (see graphic).
“This indicates that higher tax concessions are being availed by the larger companies,” the government said in this statement.
A sector-wise analysis shows that companies operating in industries such as cement, mining contractors, leasing companies and film distributors paid taxes at an effective rate of less than 10%. Companies operating in the paper industry, power and energy sectors pay taxes at a rate of 10-15%, while companies operating in industries like drugs and pharma, petroleum, steel, sugar, tea and coffee pay taxes in the range of 15-20%.
Hindustan Times, new Delhi, 24th Nov. 2015

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