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. Last Updated: 07/27/2016

Advertisers Waiting for Promised Tax Break

The tax break advertisers have long been waiting for is almost within their grasp.

They’re probably just going to have to wait another year to be able to grab it.

The State Duma is currently cleaning up — correcting references, reconciling contradictions — the articles relating to profit in the Tax Code that President Vladimir Putin signed in August. In this procedure the Duma can’t change the code, only work out any inconsistencies or errors in the documents. Tax specialists say this means the increased deductions that companies can take on advertising costs probably won’t go into effect until Jan. 1, 2002.

"In Russia, of course, anything can happen, but we assume that the Duma won’t finish in time for it to go into effect in the coming year," said Galina Naumenko, tax manager with PricewaterhouseCoopers.

Currently, a company can only deduct advertising expenses equal to 2 percent of total revenues. Any amount spent above that 2 percent is taxed as if it were profit.

In 2002 — if all goes according to plan — advertisers hope there will be no limit on deductions for advertising.

This is one concept the creators of the new Tax Code chapters borrowed from the West and was rarely — if ever — a source of controversy.

"Everyone understood that it was important from the very beginning, and as the law went through every reading, there was very little opposition," Naumenko said.

In March, Prime Minister Mikhail Kasyanov promised to sign a decree to increase fivefold the amount a company can write off for staff training, business entertainment and advertising.

This promise was made after Putin announced these measures following a conference on foreign investment.

The new deduction rules were to come into effect as of April 1, but the government hasn’t said a word about the proposal since then.

Daniil Pulakh of Trans:Ladno Communications, an advertising agency, thought the repeal of the deduction limit was simply "marvelous."

"It will be great for our industry in all aspects," Pulakh said.

But with a set number of established advertisers in the market, a sharp increase in the volume of work available will mean higher prices for commercial placement and production, he said.

Demand could go up when companies realize the government will stop taxing them on expenses, which is what the current law achieves, Pulakh said.

This might not have an effect on advertising’s heavy hitters in the Moscow market, who don’t necessarily make advertising decisions based on money.

"These companies don’t make spending decisions based on whether advertising is cheap or expensive, they do it because they have to," Pulakh said.

But Yelena Yolkina, marketing director for Renaissance Insurance, says changes in advertising tax will make a difference.

What kind of difference, though, is still unclear. "It’s still too far off to know what this will do to our marketing budget," Yolkina said.