Argentinian ad industry rocked by new 10.5% tax

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BUENOS AIRES - Agencies will have to pass on to their clients the 10.5% value added tax that the government proposes to slap on the ad industry, agency bosses predict. And advertisers are likely to cut their media budgets as a result.

The new tax comes as part of wide-sweeping measures unveiled by the government this week to combat Argentina's chronic budget deficit. Other industries affected include non-educational print media, which sees a new 5% VAT, and cable television, hit with a 10.5% VAT. Economy Minister Fernandez expects Congress to pass the measures, though opposition parties have already voiced their discontent, saying the proposals would have a negative effect on Argentina's economy which is only slowly coming out of a year-long recession.

While the terms of the 10.5% VAT on advertising are still unclear -including the date on which it will be implemented - most expect it to cover the previously VAT-exempt outright media purchases by advertisers. Advertising production costs and media buying commissions are already saddled with the country's 21% blanket VAT.

"We're not sure what this means," says Alberto Betancourt, President of Ammirati Puris Lintas, Buenos Aires. "All the text (of the new tax) is not written yet and we don't know what its impact will be."

Jorge Vazquez, President of Ayer Vazquez SA de Publicidad, Buenos Aires, the country's largest ad agency, is especially bearish. He expects advertisers to trim their media budgets in near equal proportions to the new tax. "We can't absorb the cost and neither can the media," he says, adding that agencies will be forced to pass the VAT on to their clients. The unveiling of the new tax, meanwhile, comes at a particularly bad time for the ad industry, which has yet to show any significant rebound after media spending fell 10.65% last year to $3.052 billion.

Slightly less downbeat is Horacio Diez, President of Ogilvy & Mather, Buenos Aires, who believes the main impact will be "psychological" and "administrative". He predicts it may create some friction between advertisers and agencies because of the added burden the new tax will put on agencies' fee collection processes.

Copyright August 1996 Crain Communications Inc.

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