Nokia Will Not Move India Production to China Despite Tax Woes

Finnish phone maker Nokia will not shut down its largest phone-manufacturing facility in Chennai, southern India.

According to an AFP report, Nokia has said it remains "committed" to India, which remains a "priority market" and that its Chennai factory plays an "integral part in (the company's) global manufacturing strategy".

The statement followed a newspaper report that said protracted tax problems in India could force the cell-phone maker to move its entire Indian manufacturing operation to China.

Nokia, in a letter dated 19 June, informed the Indian government that the country was its "least favourable market" to operate in. The company added that its Indian tax woes made it more cost-efficient to manufacture mobile phones in China and import them into India, the company's second largest market.

"Nokia can confirm that it has been in discussions with the central government and state government over ways to bring greater clarity to the business environment in India.

"These discussions have been both constructive and productive, and both sides have worked in a true spirit of cooperation," the company added.

Nokia faces a massive tax bill and may have to pay over 20bn rupees (£200m) to Indian authorities after its Chennai factory was raided by tax officials in January. In addition, the company has been deprived of a $101.56m (£65m, €75m) VAT refund promised by the state of Tamil Nadu, where the factory is located.

Nokia is not the only foreign firm battling tax demands in India. Vodafone, Royal Dutch Shell and Cadbury have been targeted in a clampdown on perceived tax evasion by overseas companies, designed to narrow the country's huge fiscal deficit.

Nokia trails South Korean firm Samsung in India, one of the fastest growing mobile phone markets in the world.

Indians purchased over 60 million mobile phones in the first three months of 2013 and Nokia commanded a 15% market share. Rival Samsung led with a 16% market share.