China firms joining forces for tax fight

<p>China's local enterprises and media owners have joined forces to </p><p>lobby against a new advertising policy, which is threatening to cap </p><p>their annual adspend budgets. </p><p><BR><BR> </p><p>Under the tax bureau's latest directive, local enterprises will be </p><p>allowed to spend no more than two per cent of their total annual sales </p><p>turnover on advertising, and five per cent on below-the-line. </p><p><BR><BR> </p><p>If advertisers spend more than this level, their marketing expenditures </p><p>will not be counted as operational cost before tax. </p><p><BR><BR> </p><p>It appears that China introduced this draconian policy as part of a </p><p>continuing crackdown on its wayward state-owned enteprises, which are </p><p>saddled with massive debts from overspending. </p><p><BR><BR> </p><p>Foreign and joint-venture companies have been spared as they operate </p><p>under a different tax regime. </p><p><BR><BR> </p><p>Said Zenith Media Beijing GM Derek Kwok: "The new tax law would limit </p><p>them (SOEs) to use advertising as a major weapon in marketing their </p><p>products." </p><p><BR><BR> </p><p>Multinational ad agencies are certain the new directive will not affect </p><p>their billings as the bulk of their business involves international and </p><p>joint-venture clients. </p><p><BR><BR> </p><p>However, China's mass media are bracing themselves for the heaviest blow </p><p>as about 74 per cent of the mainland's total adspend is generated by </p><p>local enterprises. </p><p><BR><BR> </p><p>Carat China managing director Winnie Lee said the policy would affect </p><p>the advertising strategy and budgets of local companies. </p><p><BR><BR> </p><p>Zenith's Mr Kwok believes local enterprises may resort to "creative </p><p>methods" to avoid this tax. "Ad dollars could be diversified to other </p><p>marketing tools or other more underhand ways like rebates for the </p><p>wholesalers and retailers." </p><p><BR><BR> </p><p>The directive will also open up a window of marketing opportunity for </p><p>foreign corporations to counter their local competitors. </p><p><BR><BR> </p><p>While the latest directive has generated plenty of controversy, others </p><p>who have seen policies come and go point to the many grey areas in </p><p>guidelines for the advertising and media industry. </p><p><BR><BR> </p><p>J. Walter Thompson China CEO Tom Doctoroff said: "There have been many </p><p>complaints from state-owned companies about this arbitrary regulation </p><p>and it appears the whole issue is up for review on a national level. </p><p><BR><BR> </p><p>"These type of laws masquerading as trial-balloons are very common here </p><p>and it's important not to panic when regulations of this nature are </p><p>issued," said Mr Doctoroff. </p><p><BR><BR> </p><p>"I suspect the whole thing will blow away as it is patently unworkable, </p><p>even for SOEs." </p><p><BR><BR> </p>