Friday, July 20 2018


Advertising cost cap comes under fire

Update: July, 12/2012 - 10:00


Shoppers in Ha Noi's Big C Thang Long Supermarket. There have been calls for a cap on advertising expenses to be removed to boost business development in Viet Nam. — VNA/VNS Photo Tran Viet
HA NOI — Experts and enterprises are renewing the call for removing the cap on the tax deductibility of advertising under the Law on Corporate Income Tax, arguing that the limitation is hindering business development in Viet Nam.

The point was raised again yesterday at a workshop held by the Viet Nam Chamber of Commerce and Industry and the Association of Vietnamese Retailers in Ha Noi.

The cap on deductible advertising costs has been in effect for 13 years, allowing enterprises to only deduct the costs of advertising if it is under 10 per cent of the enterprise's total input costs. (For newly-established enterprises, advertising expenses could amount to as much as 15 per cent of total expenses for their first three years.)

According to a survey on the impacts of the cap conducted by the Academy of Finance's Institute of Economy and Finance, 31 per cent of 300 surveyed enterprises in Ha Noi, Da Nang and HCM City said their business were badly affected by the restriction. Most were foreign-invested or large enterprises operating in banking, food and beverage, cosmetics and electronics industries.

Thirty-four per cent said there should be no limit on the deductibility of advertising costs, while the rest said some limit was needed but at a rate of more than 10 per cent of input cost.

The enterprise community has voiced their concerns over the cap consistently over the past decade.

"However, no sound responses from the Government have been received to date, which is disappointing," said Association of Vietnamese Retailers vice president Dinh Thi My Loan.

Experts at the workshop agreed that the draft amendment of the Law on Corporate Income Tax slated for passage in 2013 should eliminate the limit on advertising costs.

Quach Duc Phap from the Viet Nam Association of Financial Investors (VAFI) said that the restriction of advertising costs aimed at preventing enterprises from inflating advertising expenses as a means to evade taxation and a protecting domestic small- and medium-sized enterprises from better-funded foreign rivals.

In fact, Phap said, it seemed to run counter to expectations, with the regulated ratio for advertising costs simply preventing enterprises from using the resources needed to develop their images or brands.

Loan emphasised the significant roles of advertising and promotion to the retail industry, saying that they helped increase competitiveness and build brands, which in turn benefited consumers.

"Since advertising cost limit cannot be abolished immediately, the ratio of deductible advertising expenses should be increased from the current 10 per cent to 20 per cent, a change that should be applied right now, this year," Loan proposed.

While State tax revenues might be reduced at first, said lawyer Vu Xuan Tien from Ha Noi Bar Association, "this is only a short-term damage. When enterprises are allowed to spend more in advertising, their market will be expanded and their turnover increased and they would pay more in taxes in the future."

Economic expert Nguyen Minh Phong said that enterprises should have the rights to decide their level of advertising expenses for themselves. The Government should intervene only in ensuring the transparency and honesty in advertising and promotion and fair competition for the sake of consumers.

A cap on the tax deductibility of advertising costs is applied in only two countries in the world, Viet Nam and China. The ratio in China is set at 15 per cent of the enterprises' yearly revenues, not as a percentage of much smaller input costs as in Viet Nam. — VNS

Send Us Your Comments:

See also: