Vietnam to cut tax breaks for advertising

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HANOI -- Vietnam is preparing stringent new regulations that will cut tax-deductible advertising and sales promotion expenses from 5% to 2% of total allowable business expenses. Companies will be able to spend over the limit, but none of the spending above 2% will be offset against tax.

Dang Thi Binh An, an official at the Finance Ministry's foreign investment enterprise taxation department, says the new regulations will be published by the end of May and once approved will be applied retroactively in calculating corporate taxes during the current fiscal year, ending Dec. 31.

The move is described as a disaster by foreign and local ad agency executives and marketers already fed up with Vietnam's high start-up costs, corruption and continually shifting legal and regulatory systems.

The rules threaten to drastically cut revenues at television and radio stations and in newspapers and other print median -- many of which are state-owned. Advertising executives say ad spending by foreign marketers trying to reach Vietnam's 76 million people normally accounts for 10% to 15% of total business expenses, and in the start-up phase is often more than 20%. Executives say the previous cap of 5% on tax-deductible ad spending was already the lowest in Southeast Asia.

Copyright May 1997, Crain Communications Inc.

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