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UPDATE 1-India should scrap retrospective asset tax - govt panel

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NEW DELHI, Oct 9 (Reuters) - India should scrap a law thattaxes asset transfers retrospectively, a government panelrecommended in a draft report that could save Britain's Vodafone

$2 billion.

Prime Minister Manmohan Singh set up the panel to look at aseries of tax measures introduced this year that were criticisedby global business groups and dampened investor sentiment inIndia.

The panel said in the report that government should, as amatter of policy, avoid anything that "comes as a surprise" tothe taxpayers.

The decision to tax indirect asset transfers retrospectivelycame only months after the Supreme Court ruled that mobile phoneoperator Vodafone was not liable for $2 billion dollarsin tax and interest on the 2007 purchase of the Indian assets ofHutchison Whampoa .

The government panel's draft report recommended that therules be applied only to future indirect asset transfers, whichwould let Vodafone off the hook.

The panel also suggested that no interest should be chargedif the government did decide to apply tax retrospectively - amove that could potentially lower Vodafone's tax liability.

The panel will wait for public feedback on itsrecommendations before publishing a final report.

(Reporting by Rajesh Kumar Singh; Writing by Frank Jack Daniel;Editing by David Goodman)

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Keywords: INDIA TAX/