Faced with massive outflow of foreign capital, FICCI on Sunday suggested the government to make taxation laws in the country attractive enough for FDI and bring down tax rates for overseas firms to a level that is at par with that for the domestic companies.

"Tax treatment of foreign companies' income from investment in India is one of the most important deciding factors to invest in the country," FICCI said, adding "it is therefore important to have our taxation laws attractive enough for encouraging FDIs."

Several countries, such as Malaysia, Thailand and China had, at different times, tax rates that favoured FDI over domestic direct investment.

Indian tax laws treat all companies incorporated in India equally, it said, adding "in fact, tax rates are higher with respect to Indian branches of foreign incorporated companies".

The current effective rate for foreign companies is 42.23 per cent, as against 33.99 per cent for domestic company.

Since the beginning of this financial year, India's foreign reserves have gone down by more than 35 bn dollars.

The industry body has also asked for a more enabling environment for Mergers & Acquisitions in the country. A provision should be inserted in the Income Tax Act, whereby dividends received from, as well as capital gains arising on the sale of shares in foreign companies in which an Indian company has an equity interest of 10 per cent or more, will be tax exempt or concessional taxed, it said.

Apart from ironing out the practical difficulties being faced by the international community in relation to Transfer Pricing regulations, FICCI has underlined the need for Advance Pricing Agreement (APA).

India also needs to introduce safe harbour rules to provide relief to taxpayers from detailed transfer pricing obligations under the law, the chamber said.