JAKARTA - A long-running tax
saga is keeping this summer's Hollywood
blockbusters out of Indonesian cinemas and drawing
new negative attention to the country's often
dysfunctional and corrupt regulatory environment.
The film freeze began in February when the
Motion Picture Association of America (MPA), which
controls Hollywood's six big studios, including
Columbia, Paramount and Disney, began to boycott
an unusual royalty scheme that would have forced
them to value films before they had earned any box
office revenue.
The MPA's regional office
has argued that the decision to levy the tax was
unfair because it took advantage of a loophole in
World Trade Organization regulations. To
complicate matters, the
royalty fee came just after
Indonesia's tax office notified domestic film
importers that they owed around US$2.6 million in
years worth of unpaid taxes.
Previously,
film importers paid taxes on the physical length
of a film, but according to a long-overlooked rule
the government also has the right to collect tax
on each film's earnings. Some speculate that the
royalty tax was the government's way of going
after importers who have not fulfilled their tax
obligations.
What began as a mere
political blunder has since opened suspicion about
the MPA's support for monopolistic practices since
the rights to import Hollywood films belong to
only one company, Cineplex 21, which also owns
more than 80% of Indonesia's 600 theaters.
In apparent response, the Finance Ministry
has agreed to recast its royalty policy. On July
14, local media reported that issues with customs,
royalties and income tax were solved and only
"technical" issues remained.
But Finance
Minister Agus Martowardojo says big-name titles
like the latest Harry Potter and the Deathly
Hallows won't be showing on screens any time
this summer until the importers agree to pay their
taxes or the Hollywood exporters find other local
distributors.
Losing out In
recent weeks, six new film importers have applied
for permits with the customs office. A preliminary
review by officials, however, revealed that they
all share an address with the two importers tied
up in tax court, Camila Internusa Film and Satrya
Perkasa Esthetika Film.
Of the nine
licensed importers, Camila and Satrya, the two
with ties to the major studios fall under Cineplex
21's umbrella. The others import mostly
independent b-grade productions from Korea,
Thailand or India's less star-spangled Bollywood.
The customs office says it will need to
determine who will be the ultimate beneficiary of
an import license before it grants new permits.
Ananda Siregar, the head of Indonesia's only other
major cinema, Blitz Megaplex, says it would be
political suicide if officials gave a license to
an importer and found out later the money was
actually flowing back to Cineplex 21.
He
believes importers have refused to budge partly as
a negotiating strategy, and partly because they
have something to cover up. He also questions why
the studios have not sought out alternative
distributors, and why they have not shown more
anger toward the importers who charged them a fee
for the taxes that they appear not to have paid in
full.
In its defense, the MPA has said it
would rather send its films elsewhere since
Indonesia, which accounts for roughly 1% of its
annual revenues, is not a big enough market to
justify a protracted battle over unclear
regulations.
Figures for Indonesia's total
annual box office take vary between $90 million to
$150 million, slightly below Singapore but twice
as big as Thailand. Given the country's population
of 240 million and a growing middle class, the MPA
should be eager to cash in on the potential there
for large profits, Siregar said.
"In my
opinion they're just not neutral. Commercial
success is not their number one priority."
Studio representatives, meanwhile, say
they are open to importing through other agents,
such as Omega, the one importer newly approved by
the customs office. They say they will resume
imports of foreign films as soon as they clear up
tax issues with the authorities.
With the
two big importers refusing to budge in tax court,
the studios grouped under the MPA have few
alternatives. They can appoint a distributor not
associated with Cineplex 21 or they can lobby to
create their own distributor, which would require
the government to open up its so-called "negative"
investment list that currently blocks foreign
investors from the creative industry, including
film-related sectors.
Officials say the
MPA has expressed reluctance about dealing with
importers it's not familiar with. Siregar explains
that an importer has to pass an acid test before
it can form a contract with the major studios.
His requests and queries to the major
Hollywood studios have gone largely unanswered, as
have calls from the media. Blitz, which earns
around 18% of the country's total box office
sales, would like to begin importing. Siregar says
its reputation proves it is capable of
distributing films across Indonesia, and that at
least some access would be better than nothing.
Empty seats Fears that Cineplex
21, once tied to the power family of former
president Suharto, could go bust are unlikely to
pan out. But local malls and cinemas are now
suffering significant losses. The head of
Indonesia's cinema union says theaters have
reported a 60% drop in revenue in the five months
since the ban took effect.
Many
independent cinemas are in danger of closing
permanently. Blitz has shortened its operating
hours and closed some screens on a rolling basis.
"As a cinema owner, I'm suffering," Siregar said.
Officials at the Ministry of Culture and
Tourism, which is responsible for the film
industry, said reducing the number of imported
films would help to "safeguard" the nation's
culture and provide support to the local film
industry.
Local film buffs scoff at that
official line, saying Indonesian films cannot
compete with Hollywood action hits. Indeed, sales
of black-market DVDs are on the rise, say sellers.
Those with money, meanwhile, are flying to
nearby Singapore and Malaysia to catch the latest
releases. Tour groups are taking advantage of the
freeze by organizing theme-based trips, such as
two-day "Transformers Tours" to see the latest
Michael Bay sci-fi flick. Meanwhile, the empty
theaters here are a reminder of Indonesia's
dysfunctional regulatory environment.
Sara Schonhardt is a freelance
writer based in Jakarta, Indonesia. She has lived
and worked in Southeast Asia for six years and has
a master's degree in international affairs from
Columbia University.
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