Monday, February 21, 2011

Copyright royalties storm in a tax teacup  

A furor has erupted over Customs taxes on imported movies, according to yesterday's Jakarta Globe -  Indonesian Customs plans to change the excise duty basis for imported films, currently a per metre charge on imported films. Now they will add in a royalty based element, depending on the royalty paid from the Indonesian distributor to the foreign film company. Royalties are assessed upfront then adjusted by Customs following a later audit. Foreign film companies are threatening to withhold further distribution, and filmgoers are panicking this Oscar season that they may not see the blockbusters.

Copyright royalties are a permitted valuation methodology for excise under WTO rules but few countries use it. Indonesia's government argues it will allow local filmmakers to develop. But film companies and movie goers don't see it that way. Are these taxes likely to be used to invest in local films, or are they just part of the overall increase in tax collections? Indonesia has a vibrant film industry, but it does not generate the revenues of Hollywood. Local distribution is warped somewhat by the monopolies in import and distribution. There are certainly better ways to encourage an industry than beating it's competitors with the tax stick.  And raising import tariffs seems somewhat contrary to the direction the world is going, even if WTO sanctioned.

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