The coming Budget will aim at making India the headquarters of top multinational companies. Sources close to the developments say the government is likely to adopt the "Singapore headquarters initiative," which provides tax incentives to invite companies to set up headquarters. The initiative was launched by the island nation in 1986.

The government is likely to announce an "India headquarters initiative" under which similar tax incentives will be provided to companies.

The incentives offered by Singapore include allowing group companies to offset losses through profits made by their subsidiaries and levy of a low corporation tax of 20 per cent. The idea of following the model was mooted by industry chamber Assocham at a meeting with the revenue department officials.

After that, the finance ministry sought further inputs from the corporate sector and after examining the tax structure in countries like Austria, Switzerland, France and Cyprus, decided to consider the model.

Out of 3,600 foreign companies in Singapore, a quarter use the country as their headquarters due to the sops. Several top names in Indian telecom and information technology sectors have their regional headquarters in Singapore.

Singapore has reduced the corporation tax rate to 20 per cent from 2005 assessment year. A company in Singapore pays a flat rate of 20 per cent tax on its chargeable income. This is far less than India's corporation tax rate of 33 per cent.

The individual top marginal tax rate in Singapore has been reduced to 22 per cent and personal income tax rates for all income bands have been reduced correspondingly.

Under the model, group relief is being provided to companies since 2003. Group relief recognises group companies as a single economic entity which is allowed to offset losses through profits made by its subsidiaries. A loss-making company can choose to transfer its losses to another group company. This lowers the tax burden.

However, foreign losses cannot be transferred for the purpose of group relief. This is because foreign income is not taxed in Singapore unless it is remitted.

The country also has a not ordinarily resident taxpayer scheme, under which an individual is only taxed on the portion of employment income based on the actual number of days spent in the country.