Business leaders welcome advertising tax reform
Published in Bucharest Business Week, Jan 1998
The Bucharest business community has unanimously welcomed the announcement of an emergency ordinance making advertising expenses 100 per cent tax deductible. The ordinance, which modified the profit tax law of 1994, was issued on December 3, 1997 and came into effect at the beginning of this year.
Until now, deductible advertising expenditure has been limited to six per cent, making Romania the only former communist country not to have total deductibility apart from Russia and Kazakhstan. Several organizations and individuals, including the Romanian chapter of the International Advertising Association (IAA), the Foreign Investors Council and the president of the Romanian Senate Finance Committee, Varujan Vosganian, have been lobbying the Prime Minister to modify the law to stimulate growth in advertising. An estimated 85 - 90 million USD was spent on advertising in Romania in 1997.
Mihail Vartosu, the managing director of advertising firm Grey Bucuresti, who last year was the president of the Romanian chapter of IAA, told BBW: “We are expecting that clients will spend more. New business will appear.” He pointed out that the law would make advertising more affordable, and not only for the foreign companies that at the moment make up the majority of Grey’s clientele. “Local businesses will see the potential of advertising,” he said. While the law was not perfect, he said: “I think it’s the maximum we could get at this stage.” He felt the advertising forum covered in BBW no. 4 had been instrumental in the process. “The National Forum of Advertising last November was very good in communicating to the executive that it was high time to take Romania out of isolation,” he said.
Veronica Savanciuc, general manager of Plus Advertising Lintas and vice-president at IAA, said the government’s decision was a reward for months of hard work. “We were very concerned about the deductibility. At the beginning of last year we started working on a committee, to try to draw the government’s attention to this issue. It was great that the government reacted. Our efforts were an important part of the law being drawn up.” She said the law would have very positive results. “More jobs will be created and the media will get more money,” she told BBW.
Radu Florescu of Saatchi and Saatchi was more skeptical. “It’s the application that I’m more curious to look at,” he said. “More clarity is needed because it’s very vague about the type of companies it applies to, whether it’s old companies or new companies and so on. There was a proposal that it would not apply to Romanian companies - that would have been ridiculous and I’m glad that’s been rescinded.” And he said the law would not have an immediate impact on Saatchi and Saatchi’s business: “It’s going to take time to increase business, it will happen during the year, not immediately.”
Aside from advertising executives, representatives of the business community at large expressed their enthusiasm about the new provisions. Christopher M. Shonn of real estate advisory firm Colliers International said: “Colliers International plans to take full advantage of the ability to deduct 100 per cent of advertising expenses. The change is especially welcome for our firm and our projects as we forecast that the real estate industry will begin to enter a period of dynamic growth.”
And Dan Ghitescu from the marketing department of Unilever said: “Being in a fast-moving consumer goods business, advertising is a major part of our costs. I think the law is OK. The major thing is that there is no longer a split between protocol and advertising expenditures.”
Alain H. Cornet, chief financial officer of Procter & Gamble marketing, who was on the committee with Savanciuc, said the law was “exactly what we’ve been asking for for a year and a half. Our committee, with the endorsement of 88 companies, prepared a report on the subject about a year ago which contained all the arguments as to why such a law was necessary. Advertising is not a privilege but a basic right.” He hoped that future legislation would contain a clearer definition of protocol expenses, but for that “they need to improve the training level of the administration.”
Varujan Vosganian told Bucharest Business Week: “This was my success. I was very much involved in the lobbying for this law. Advertising not only creates profit but emancipates mentalities, orientates people towards consumerism. Transition is a profound cultural process in which advertising plays a special role.” Among the advantages of the new legislation, Vosganian mentioned that the market would be stimulated, around 10,000 jobs would be created in advertising and related industries such as cinema, and the average citizen would be better informed.
The functioning of supply and demand and the financing of the mass media will be improved, he said. Moreover, the legislation is “an important step on the road of harmonizing Romanian law with that of the European Union.”
Bucharest Business Week also spoke to Finance Minister Daniel Daianu, who seemed less enthusiastic. “I do not like the consequences of the law on deducting advertising expenses because it makes the budget construction more difficult,” he said. “But I certainly am in favor of investments. We want to make life easier for all who are willing to invest.”
