The act no. 71/2014/QH13 on amendment and supplement a number of articles of the act on corporate income tax became effective as from January 01, 2015. The act contains many changes, particularly with respect to abolition of the advertising cost limit of 15% of total business expenses.
The provisions on advertising cost ceiling were made under the concept of commanded/planned economy in the past with the aim to reduce loss of revenue. This actually intervened too deeply into the decisions of enterprises and it serves no useful purpose and should be abolished. Furthermore, dropping advertising cost ceiling will not only affect the national budget because the tax would be collected indirectly through advertising businesses, but it also creates more jobs for the society.
To bring new products into the market, start-up businesses and SMEs have to set really huge ad budgets, meanwhile the turnover for goods or services have not yet received. In this case the advertising cost limit is obviously unrealistic.
In effect, it can only restrain SMEs from paying for advertising expenditures after the limit has been reached, but it could not take effect on huge or FDI enterprises. For example, when the business produces an advertisement on TV for its activities, they can transfer pricing abroad of the production costs for video clip up to 80% of the budget and the remaining 20% will be paid for domestic broadcast only.
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