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Firms squirm under cap on advertising costs

Update: February, 04/2013 - 15:42

by Thien Ly

Both domestic and foreign firms have called for lifting restrictions on advertising and promotional spending to mitigate the economic gloom.

The Corporate Income Tax Law caps spending on advertising and promotion at 10 per cent of total costs for businesses that are three years old or less. Any spending above the 10 per cent limit s not tax deductible.

The Ministry of Finance is set to suggest increasing the cap to 15 per cent in a draft amendment to the Corporate Income Tax Law.

The ministry has explained in the past that the restriction is aimed at protecting domestic firms from foreign rivals with deep pockets.

Its proposal now to merely raise the cap rather than scrap it has made both Vietnamese and foreign firms unhappy.

The restriction is particularly unwelcome for them in the context of Viet Nam’s global integration and fierce competition.

For domestic firms, it has been a dampener on investment decisions at home and abroad.

Another casualty of this cap is the ability of the country’s firms to promote the “made in Viet Nam” brand name.

But the limit has not dissuaded businesses from pumping money into advertising.

According to TNS Viet Nam, a subsidiary of the world’s largest custom research company, advertising spending has almost doubled from VND9 trillion in 2008 to VND17.2 trillion ($826 million) in 2011 despite the economic downturn.

Thus, even if the cap cannot be scrapped immediately, not only should it be increased to 15 per cent as businesses demand, but also the method of computing it should be amended: It should be based on a company’s turnover and not total spending.

Free trade deals offer boon

Vietnamese export firms will be able to prosper if they know how to make the most of preferences offered under Free Trade Agreements that the Government has signed or is going to sign with countries.

FTAs eliminate tariffs, import quotas, and preferences on most (if not all) goods and services traded between signatory countries.

Viet Nam has so far signed eight FTAs with ASEAN members, ASEAN +, Chile, and Japan, who together import goods worth US$13 trillion annually, or 25 per cent of the world’s total imports.

Viet Nam’s exports to these countries account for 47 per cent of its totals, or $53.5 billion out of $114.3 billion.

This is forecast to climb to 86 per cent if the Government signs of the Trans-Pacific Strategic Economic Partnership Agreement and an FTA with EU countries.

If the trade deal with the EU is signed, it would a leap forward for Viet Nam’s exports since the bloc has some 500 million consumers with a combined income of over $17 trillion.

Viet Nam’s exports to the EU now account for only 0.75 per cent of the bloc’s total imports. An FTA will see 90 kinds of tariffs cut to very low levels, even abolished.

The country’s major exports to the EU like textile and garments, leather footwear, and food products now face high tariffs. Apparel and seafood are taxed at 10 and 12 per cent.

Exports of the two items are likely to increase by 20 per cent and 21 per cent if the tariffs are cut to zero.

Viet Nam and South Korea are also negotiating an FTA, which would see 90 per cent of tariffs scrapped within three years, and later to nearly 98 per cent.

Besides, Viet Nam will enjoy these tariff preferences for five years longer than South Korea’s other partners, meaning its exports will be competitive in the South Korean market.

The FTA will also bring some other benefits to Viet Nam such as recognition of a market economy status and increase in labour exports.

Viet Nam’s textile and garment industry is expected to benefit the most from the South Korea FTA since it would be allowed to freely export to South Korea without quotas and with tariffs reduced or even abolished.

FTAs will also enable Vietnamese exporters to diversify their export markets, thus reducing the country’s reliance on East Asia.

Production activities stand to benefit too since FTAs will enable manufacturers to import inputs and equipment at cheaper prices.

3G services get cheaper

While prices of most goods are headed northwards, 3G telecom services have been headed in the other direction, with some service providers now offering unlimited packages for just VND15,000 a month.

This has sent user numbers skyrocketing.

3G refers to the third generation of mobile telecom technology, and is a set of standards used for mobile devices and mobile telecom services and networks that comply with the specifications set by the International Telecommunications Union.

3G finds application in wireless voice telephony, mobile internet access, fixed wireless internet access, video calls, and mobile TV.

According to the Ministry Information and Communications, by June last year there were around 20 million 3G users by the end of last year, jumping from 16 million just six months earlier.

There have been two main factors for this – the steady fall in rates for 3G packages and the growing popularity of smart phones.

In November 2011 the country’s biggest telecom companies — MobiFone, VinaPhone, and Viettel — offered unlimited 3G data plans compatible with smart phones at prices as low as VND40,000 per month.

In early 2012 they reduced the price to $1 hoping to offer 3G services to almost every mobile phone in the country.

MobileFone offered two 3G packages at just VND15,000 — Zing.vn and Opera Mini.

The number of smart phones in the country was estimated to increase by around 20 per cent last year, and tablet computers by nearly 5 per cent .

On Device Research, which uses mobile internet to gain access to consumer opinions at any time, place, and country, says 43 per cent of Vietnamese access the internet through mobile phones. The country has 127 million mobile phone subscribers in a population of nearly 90 million..

The ratio is 30 per cent for China, 28 per cent for Thailand, and 25 per cent for the US. —VNS

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