Tuesday, August 2, 2011

Harry Potter, royalties, taxes and monopolies

With the Indonesian tax dispute on royalties for imported films unresolved since January, consumers, say to press reports are increasingly upset at the lack of summer blockbuster films to see. The latest Harry Potter and many others are the subject of a supposed boycott by Hollywood studios, who can no longer supply films to Indonesian importers, since the importers are now subject to tens of millions in back taxes. 

The situation occurred when Indonesian Customs invoked a suspended rule in 2010 to change the basis of import tariffs on imported movies from a per metre basis to charges based on the estimated revenues from the films (in effect a copyright royalty). Importers were caught off guard and retroactively taxed. They objected as this was in effect double taxation on their revenues. The furore led to a cessation by the importers and Hollywood distributors from importing any new films early in 2011. The Ministry of Finance which governs Customs has appeared somewhat out of step with other departments responsible for the film industry during the dispute.

The latest is that the basis for taxation has now been shifted to a per minute basis. But the back tax problem is still an issue, and the importers and studios are still clearly nervous. Indonesia has one of the lowest theatre prices in Asia according to IP Komodo's sources, but is a hugely successful theatrical market.

Meanwhile an unusual silver lining has appeared. Indonesia's film import and distribution is dominated by one company, 21 Group, which holds all the Hollywood theatrical licences, (a Suharto era legacy monopoly). It and one other company Blitz, have the right to run theatres, to show films. But Blitz must import through 21 much to it's annoyance. As a concession for the tax cock up the government has indicated it's intention to put before Parliament legislation allowing direct distribution of films by foreign companies, and deregulating the film import and distribution monopoly.

All this is good news for consumers, but the government has been somewhat embarrassed by the Film Department director at the Ministry of Culture and Tourism being caught away on a trip to of all places, the Cannes film festival! Catching up on all the movies the rest of us will miss no doubt!

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