Singapore is slowly losing the unique brands which form part of the shared cultural identity of its population. This is a problem because besides service industries, which comprise a great proportion of the Singapore economy, future growth is likely tocome from knowledge-based industries.
In August, the Government announced an intellectual property financing scheme that allows a company to use its intellectual property as collateral on loans.
While the details are still being finalised, this is a step in the right direction in recognising the value of a company's intellectual property. The idea has been discussed for many years, with many businesses welcoming the change.
It is now time for the tax disparity between brand purchasers and brand developers to be addressed.
Singapore's current tax rules inadvertently encourage local companies to sell their brand rather than to develop it. Instead of holding onto their brands, business owners have an incentive to transfer their brands and other intellectual property to other legal entities, or to sell these valuable assets in order to make money from them.
Markets around the world are increasingly recognising that intangible assets, such as brands and know-how, are fast replacing tangible ones such as land and buildings as key contributors to a company's value. Indeed, half of global market value today can be attributed to intangible assets. And this figure looks set to continue rising as more knowledge-based economies develop.
Businesses and markets have responded by putting intellectual property protection strategies in place, developing valuation methodologies, and reviewing accounting standards to recognise the value of intellectual property.
But almost every tax system in the world, including Singapore's, has failed to account for this dramatic shift.
Most tax systems regard the purchase of an intangible asset - such as a patent or trademark - as a business expense. Companies are, therefore, permitted to deduct the cost from taxable profits through a so-called "writing-down allowance" over a specified number of years, usually its useful life.