Vietnam scraps ad cost cap

1 October 2014

HO CHI MINH CITY: Brand owners, retailers and agencies have all welcomed the decision of the Vietnamese government to remove a long-standing cap on deductible advertising costs.

Over a number of years the cap had risen from 7% of a firm's total input costs to 10% and then 15%, before being finally scrapped. Businesses have argued for some time that it is up to them to decide how much to spend on advertising and marketing and that the cap was hampering their ability to invest in building brands.

"Lifting the ceiling spending on ads is a correct decision of the state management agencies," Dinh Thi My Loan, chair of the Vietnam Retailers' Association, told VietnamNet.

There has been growing pressure for change in recent weeks, with Loan telling a conference that only Vietnam and China, of 50 countries surveyed, operated such advertising cost limits. And in the case of China, firms were at least able to transfer unused quota to the following year.

She also rejected the idea that lifting the cap would lead to manufacturers increasing the selling prices of their products. If manufacturers spent too much on ads, she argued, that pushed production costs up and products would not sell as well.

The new dispensation was applauded by Pham Thanh Minh, Secretary General of the Hanoi Ad Association, who expected that the freedom to spend as they wished would lead to companies increasing their focus on brand building.

"The building of trademarks requires the important tools of advertising and public relations," Minh said. Not only would the removal of the advertising cap accelerate this process it would also help advertising companies to further grow and develop.

VietnamNet also referred to a survey conducted by consulting firm Ernst & Young, which stated that lifting the cap on marketing expenses would generate economic growth, improve business competitiveness and bring about products at lower prices for consumers.

Data sourced from VietnamNet, Talk Vietnam; additional content by Warc staff