Advertising billboards at the Giai Phong Intersection on Dai Co Viet Street, Ha Noi. — VNS Photo Doan Tung

HA NOI (Biz Hub) — The removal of the cap on the tax deductibility of advertising will help Vietnamese businesses integrate into the world economy, attract foreign investment and effectively compete in other markets.

Pham Thi Thu Hang, general secretary of the Viet Nam Chamber of Commerce and Industry (VCCI), told a seminar on the removal of the advertising cap held in Ha Noi yesterday that one of the most important issues in the domestic and export markets was the building of big and strong brand names which could compete with those of foreign companies.

"It is for this reason that local businesses need advertisements, to popularise their image among consumers and invest in technology development," Hang said. She suggested that organisations and enterprises propose the total abolition of the cap to the National Assembly.

Dinh Thi My Loan, Association of Vietnamese Retailers chairwoman, agreed, saying the cap has been applied in only two of 50 surveyed countries, namely Viet Nam and China. The ratio in China is set at 15 per cent of enterprises' annual revenues, and not as a percentage of much smaller input costs like in Viet Nam.

Asked whether the removal will spark an advertising boom and an increase in the prices of products, Loan said companies have been operating under a market mechanism, and if they spent too much on advertising and promotions and spark a price increase, customers would ignore them.

In addition, if businesses cheat in advertisements, legal tools such as market watch and competitiveness management departments will investigate and act on violations.

"The Government should not limit advertising activities to help consumers gain access to diversified information which could make it easier for them to choose products," she added.

Pham Thanh Minh, vice president and general secretary of Ha Noi Advertising Association, said that if advertising costs were limited, businesses wouldn't have a high turnover as they couldn't sell their products in large quantities. The Government, therefore, couldn't collect value-added and corporate income taxes from these companies.

"The building of trademarks requires the important tools of advertising and public relations. The removal of the advertising cap could successfully accelerate enterprises' brand name building," Minh said. He noted that the abolition would also help advertising companies to further grow and develop.

Le Ba Co, vice chairman of the Viet Nam Beer, Alcohol, Beverage Association (VBA), said businesses should be allowed to spend more on advertising depending on the time of year.

The Government Office last week said the Prime Minister has approved the Finance Ministry's proposal to remove the cap. The proposal will be submitted to the National Assembly meeting next month.

The cap on deductible advertising costs, enforced for 13 years, allows enterprises to deduct advertising costs only if these are under 10 per cent of the enterprises' 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. — VNS