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Experts call for end to cap on ad costs

Update: June, 07/2012 - 10:17

Experts and officials attending the Viet Nam Business Forum spoke to the media about the cap on deductible advertising and promotion costs under the Law on Corporate Income Tax and whether it should be lifted.

Dinh Thi My Loan, vice president, Association of Vietnamese Retailers:

 

In terms of perfecting the legal system to facilitate economic development, it's unacceptable to impose a cap on advertising and promotional expenses as has existed for the past 13 years. While businesses have recommended a change for 13 years, the Government has not given any feedback on its measures, or any kind of roadmap.

Advertising and promotion are daily realities within any retail system that enables it to develop. They benefit consumers. Restricting them, above all, affects consumer interests. The Government and the Ministry of Finance should seriously consider this proposal for the sustainable development of the nation, its enterprises and the public good.

Pham Thi Thu Hang, general secretary, Viet Nam Chamber of Commerce and Industry (VCCI):

 

While VCCI makes continuous efforts to hold training courses on business administration and marketing & advertising, as well as study tours to help Vietnamese enterprises quickly integrate and improve their international competitiveness, the Government restricts or otherwise discourages advertising and promotion by law.

If this cap is intended to protect domestic enterprises, it should be adjusted to fit market's requirements in each period, rather than maintained for 13 years.

Advertising and promotion play an important role in a market economy. Viet Nam's enterprises are new in competing and yet more hesitant to promote their brands because of the cap, even when their products are competitive in quality. As a result, Vietnamese enterprises and brands are facing an increasing disadvantage in competition and even losing local market share.

Even worse is that many Vietnamese enterprises have come to think that advertising and promotion are unnecessary and look forward to perpetual protection from the Government. In fact, multinational companies still maintain advertising and promotion efforts, even as Vietnamese enterprises do not attempt to promote their brands sufficiently, thinking that they are "protected" from competition. Lifting this cap would mean the Government and enterprises were committed to lifting the status of Vietnamese brands and trademarks.

Quach Duc Phap, former director of the Ministry of Finance's tax policy department and deputy head of the Faculty of Accounting, Ha Noi University of Business and Technology:

 

There are many different reasons behind this provision, but 13 years of a temporary solution is too long. We should consider removing this cap because it is contrary to international economic integration and reduces our competitiveness. According to current research, China is the only nation in the world besides Viet Nam that maintains a limit on deducting advertising and promotion expenses at 15 per cent of sales, with excesses allowed to be carried forward for tax deduction in future years. So this is even more liberal than Viet Nam's 10 per cent of valid expenses. In 2011, China considered removing this regulation and may abolish it.

Huong Vu, managing partner, Ernst&Young Viet Nam:

 

This policy has been imposed since the first Law on Corporate Income Tax was passed by the National Assembly in 1997, taking effect in 1999. In subsequent amendments of the law in 2003, the cap was loosened from 7 per cent to 10 per cent, while, in 2008, it was raised to 15 per cent in the first three years for newly established enterprises.

However, the overriding policy has not changed much and even been tightened at some stages, such as when newly issued circulars abolished the guidelines for tax authorities on how to determine restricted items.

As a consultant for many foreign-invested enterprises in Viet Nam, particularly those companies operating in consumer goods with large-scale and long-term commitments to the Vietnamese market, we found that the cap is a deterrent to foreign investment.

In the early years, when Viet Nam offered many income tax incentives for foreign-invested projects, investors still appreciated Viet Nam's attractiveness despite the advertising and promotion cap. However, with the economy more gradually growing and forming, the Government has narrowed corporate income tax incentives for selective investments, leaving the advertising and promotion cap as a significant obstacle for foreign investors to join or expand in the Vietnamese market, even those enterprises which are already established here.

In terms of management, advertising and promotion are real costs of doing business. Applying policies to interfere with these activities in a market economy is unreasonable. Due to the cap, the effective corporate tax rate in some industries is up to 32 per cent, even 40 per cent, much higher than the 25 per cent tax rate under the law, making the policy environment in Viet Nam even less attractive, since 25 per cent is already relatively high compared to other countries in the region. — VNS

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