Financial Times

Singer reduces ad budget due to new tax rule

Singer Sri Lanka said last week the company's effective tax rate is under pressure, mainly due to an add-back of 50 percent on advertising expenses now considered as a tax disallowable expense and has cut back its ad-spend by 15 percent to partially mitigate it.

"Advertising is a pre-requisite to increasing productivity in the product cycle as it moves products and bands through manufacturing to ultimate consumption at retail point and we are at a loss to understand as to why 50 percent of this is disallowed as a valid tax deductible expense from profits earned out of ordinary operations," chairman, Hemaka Amarasuriya has said in his review for the 2006 first quarter.

Finance Director Ashok Peiris told The Sunday Times FT that the company's top lines have grown by 18.5 percent despite cutting back on the ad-spend.

"We reduced our ad-spend from January and it has not affected our top line growth," he said.

Industry analysts said that many other such companies will also follow suit in reducing advertising spend.

Amarasuriya has said that as firms realise the impact of advertising on their ultimate net income which is an additional 17.5 percent to the cost of advertising the cut backs are beginning to occur.

"What is under jeopardy is not only net profits of corporates but also the future growth of the communication industry," he has stated, adding that the company has decided to cut back on the advertising budget by 15 percent in order to partially mitigate this unorthodox tax thereby managing the company's growing effective tax rate in the best interest of shareholders while neutralising the negative tax impact.

The company posted a profit of Rs.2.9 billion for the first quarter, which is a 1.6 percent increase from last year's Rs.127.4 billion.

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