India ranks a surprising third on an international tax misery index that attempts to measure the relative attractiveness of a country's tax and social security policies to multinationals looking to set up base.

The index, created by Ernst & Young, ranks 50 countries and shows India's score at a low 79.3 in 2003 (a lower score indicates a higher rank).

Hong Kong takes the top spot with 43, while France brings up the rear at 179.4 even though it has reduced its misery score substantially since 2001, by lowering tax rates.

China ranks 45th and the United States finds itself at eighth position.

The study says China does not score well because it has to go a long way towards providing incentives to business people beyond that of a mammoth emerging market.

The West European countries have generally performed worse on the misery index because of a combination of high marginal rates of direct tax and heavy mandatory contributions to social security.

India, which imposes no social security contribution on employers and which is reducing its tax rates, therefore, scores much better.

The index, in its fifth year, was created by Ernst & Young for Forbes on global taxation practices.

It is intended to show where each country stands on the amount of burden it imposes on entrepreneurs in terms of individual and corporate tax rates as well as social security contributions.

Though the article acknowledges that tax is not the sole factor in choosing a business location, it says when equally attractive options are available, the tie-breaker is generally tax.

Comparing the same basket of income for the 50 countries, the study shows that on a gross annual salary of 50,000 euros for a married individual with two children, the take-home pay is 70 per cent in India, compared to 79 per cent in China and 75 per cent in Brazil, even though India has no mandatory social security contribution by employers.

But as the employer also does not foot any similar cost, the cost of doing business here is much lower.

The total cost to the employer as a percentage of the employee cost is only 63 per cent in India, compared with 91 per cent in Brazil, and 71 per cent in China.

In Europe it is 96 per cent in France, 77 per cent in the United Kingdom, and almost 88 per cent in Germany.

In the US, because of the different tax laws across the states, the picture changes considerably. While the cost to the employer is a low 58 per cent in New York, it is almost 67 per cent in Illinois.