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The endless debate about the expenses on marketing and ads
The debate about the limits on the expenses on marketing and ads still continues. This is the problem which has been “pending” for the longest time at the Vietnam Business Forum, while many other disagreements, which were thought very complicated, have been settled.
Restricting the expenses on ads and marketing at 10 percent of the total expenses is the decision which has not been applauded by the business circle. However, Vietnamese management agencies still insist on imposing the limitation.
Economists and businessmen, who participated in a workshop held recently, all agreed that setting up limitations on businesses’ operation is a rigid regulation and that the regulation needs to be amended immediately.
The article No 2 of the Corporate Income Tax stipulates that the expenses on marketing, ads, commission for brokers, reception and conferences must not be higher than 10 percent of the total legal expenses. The proportion is 15 percent, applied to the newly established enterprises for their first three years of operation.
Businesses have complained that with the limited expenses on ads and marketing, they have been facing big difficulties in expanding the market. In the context of fierce competition, if enterprises do not run big ad campaigns or offer high commissions to brokers, they would not be able to boost sale.
Lawyer Truong Thanh Duc, Deputy General Director of the Maritime Bank, said that the existence of a limitation on expenses on ads and marketing only fits the subsidization period, when businesses did not pay much attention to ad and marketing.
In fact, a lot of enterprises still have to pay much more money than the allowed level in order to boost sale. Of course, in order to do that, they have to “dodge the laws”: they install billboards, but they declare the expenses as leasing assets.
Not only domestic, but foreign businesses have complained about the unreasonable regulation. Over the last 10 years, the Manufacturing and Distribution Workgroup has been continuously raising their protest against the regulation in the annual petition presented at the Vietnam Business Forum.
According to Fred Burke, Head of the workgroup, the limitation on the expenses on ad and marketing is the issue which has been pending for the longest time at the Vietnam Business Forum, while a lot of other more complicated issues have been settled.
However, the thing that businesses call “unreasonable regulation” still has been applied, and it may exist for a long time because it relates to the national benefits.
According to Quach Duc Phap, former Director of the Tax Policy Department under the Ministry of Finance, said that if Vietnam does not set up a cap on the expenses, businesses may “play tricks” to evade tax.
Phap emphasized that in reality, the spending of many manufacturing enterprises on ads and marketing is low, and they do not use up the allowed level.
Cement, steel and garment manufacturers, for example, only spend less than 3 percent of total expenses on ads and marketing, while transport, telecommunication companies less than five percent.
Meanwhile, consumer goods companies, such as food and cosmetics companies have the spending on ads and marketing much higher than 10 percent.
It happened that in some joint ventures between Vietnamese enterprises and foreign partners, the Vietnamese side was always on the lower hand. The foreign partner, who relied on the resources from the parent foreign groups, always wanted to spend big money on ads, which led to the joint ventures incurring big losses for many years. Finally, the Vietnamese side had to transfer its capital contribution to the foreign partner, which made the joint ventures become 100 percent foreign owned enterprises.
According to Nguyen Van Phung, Deputy Director of the Tax Policy Department, this remains a big question for policy makers.
Phung said that the Corporate Income Tax would be amended by 2013, and it is likely that the limitation on the expenses on ads and marketing would be raised to 15 percent.
vietnamnet
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