But the retrospective nature of the legislation has stirred an international outcry

INDIA’S finance minister Pranab Mukherjee has defended the South Asian country as an attractive place to invest, despite controversial plans to make foreign companies retroactively liable for taxes.

Mukherjee sought to calm the row over proposed legislation to chase overseas firms for taxes on mergers involving Indian assets, saying investment decisions are not made solely on the basis of “tax concessions”.

Deciding whether to put money into an economy is “based on what’s the size of the market, whether the systems are transparent and what’s the purchasing power of people”, Mukherjee was quoted on Saturday (April 21) by the Indian media as saying.

India, with its increasingly affluent population of 1.2 billion people, remains an attractive country in which to invest, he told an audience on the sidelines of meetings of the World Bank and the International Monetary Fund in Washington on Friday (April 20).

“From all these standpoints, India appears to be a good investment destination,” he said.

India’s cash-strapped government had been widely expected to plug merger tax loopholes in its budget last month.

But the retrospective nature of the legislation has stirred an international outcry at a time when India urgently needs big-ticket foreign investments to upgrade its dilapidated infrastructure and spur slowing economic growth.

Vodafone – India’s biggest foreign investor - faces a $2.2bn (£1.36bn) tax bill over its 2007 purchase of the Indian unit of Hong Kong-based Hutchison Whampoa.

It has threatened to take India to international arbitration.

The changes would allow India to tax the sale of Indian assets, even if both seller and buyer are foreign and the deal is concluded abroad, and has left firms facing prospects of massive bills they had not anticipated.

Mukherjee said no tax case over six years old would be reopened under the legislation expected to be passed in coming weeks and promised “transparent” discussions with companies that object to the measure.

US Treasury Secretary Timothy Geithner told his Indian counterpart this week US businesses are worried about changes in India’s tax rules and that they had “dampened enthusiasm about India’s investment climate”.

Mukherjee also insisted India has “an unwavering commitment to reforms” after media reports quoted a top government advisor as saying there would be no liberalisation measures before the 2014 elections due to political disarray.
 

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