Despite an expected increase on the cap on advertising and promotion expenses, the business community in Vietnam has continued proposing to eliminate the cap entirely, which many say will help create a fair and competitive environment.

In the draft amendments to the Corporate Income Tax Law, the Ministry of Finance (MoF) proposed to raise the cap on advertising and promotion (A&P) expenses from 10 per cent to 15 per cent. Currently, the Corporate Income Tax Law only recognises maximum A&P expenses of 10 per cent of the total cost base, which means that any promotional spending above that ceiling is taxable. The cap was introduced in an attempt to prevent companies from overstating their A&P expenses to lower their income tax payments. According to the MoF, the management reality showed that apart from foreign invested enterprises, multi-national companies and especially European companies, most of enterprises had A&P expenses under the current cap and also did not propose for its removal. However, Dinh Thi My Loan, chairwoman of the Association of Vietnam Retailers, disputed MoF’s explanation, saying that the association members and some others frequently shared their viewpoint on negative impacts of this cap on their production and business activities.“With the important role of A&P on building and developing Vietnamese trademark, maintaining domestic market shares and promoting exports, the cap needs to be erased,” said Loan. In case the cap cannot be removed yet, A&P expenses limit of 15 per cent should be calculated on the total yearly revenue of businesses, not on the total cost base as currently, she added. Economist Nguyen Minh Phong said that it was necessary for enterprises to actively decide A&P expenses while the state should only interfere through regulations and sanctions on this sector.“A&P expenses are included in businesses’ corporate costs to be calculated in the selling prices. Consumers accepted to buy a product, which means that they accepted this expense,” said Phong. Previously, Vietnam Business Forum’s (VBF) Tax Sub-Group, also called for a review of the A&P cap.“We urge the Vietnamese government to consider removing the A&P cap policy totally,” said the sub-group representative Vu Thu Huong. “Any further delay in removing the cap will impact the investment attractiveness of Vietnam and the confidence of investors.”The cap, Huong said, interferes into the right of companies to do business and distorts economic relations between transacting parties. And it now becomes a hindrance to big Vietnamese companies seeking to develop their own brands to compete on regional and global markets.

Source: VIR

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