Uncertain Future for Foreign Films in Indonesia

Article  by  Dovilé DAVELUY  •  Published 29.04.2011  •  Updated 29.04.2011
[NEWS] Indonesian cinephiles have been desperately waiting for the government’s final decision regarding the import tax on foreign films. The envisioned changes that would increase tax rates led the Motion Picture Association to halt the import of foreign films into the country in mid-February 2011.
The foreseen changes in the current tax regime met with such a public outcry and the opposition from film distributors that the new policy that went into effect in January has not been enforced yet. The government has been reconsidering the level of taxation, and had promised to announce the final decision by the end of March 2011, but failed to keep its promise.
Distributors of imported films in Indonesia currently have to pay 23.75% excise duty, a 10% tax to the central government and another 10 to 15% of the profit from ticket sales to regional governments. Up to now, the customs value of imported films was calculated according to the physical length of a film reel with each meter estimated at $0.43. According to Culture and Tourism Minister Wacik Jero, the present changes are aimed at adapting this method to digital films, but the actual way of calculating the tax on these types of films has not been finalized yet.
The issue that has caused most controversy and opposition, however, concerns the payment of royalties. Previously, royalties were not included in the customs tax, because film importers argued that the amount would only be known after the film had been released. Yet, the 2006 law on customs stipulates that they should be calculated into the imports tax and paid up front. A rule that, the Economist concludes, has long been simply neglected by the Indonesian authorities.
Kristiono Heri, a customs and excise technical director at the Finance Ministry, clarified that the increase in the current tax rate is to be attributed purely to the incorporation of royalty fees into the customs value. Wacik Jero defended the new tax by suggesting that it would simplify the system by allowing the importers to pay a single tax that “would be valid forever.” Sugijata Thomas, customs and excise director general at the Finance Ministry, further explained that due to the inclusion of royalties into the customs value, “foreign distributors would now be paying higher fees up front, but possibly lower fees on the back end.” The Trade Ministry reassured that the new policy was compliant with Article 7 of the World Trade Organization’s rules on protection and enforcement of intellectual property rights.
The film importers are not only concerned with the higher tax rates they would have to pay. The Indonesian government has also accused them of not reporting $3.4 million worth of royalties in the past two years. Sugijata Thomas specified that the audit conducted on 1,759 films imported in the last two years showed systematic underreporting on the part of distributors that now face exorbitant fines. He also noted that under the previous system, the importers reported and paid their import taxes, especially the royalties, with minimal supervision from customs officers. The dispute between the state and the film distributors is currently being decided at the country’s tax tribunal.
To express its disagreement with the Indonesian government’s politics, the Motion Picture Association, which includes some of the biggest film studios in the world such as Walt Disney Pictures, Paramount Pictures, Sony Pictures Entertainment and others, stopped importing Hollywood films into Indonesia as of February 17th 2011. The MPA called the increased tax unfair and detrimental to the industry. Djonny Syafruddin, the chairman of the Indonesian Cinema Companies Association, warned at the beginning of March that Indonesian cinemas only had about two months of foreign film stocks in their reserves. As foreign films are becoming scarce, a movie aficionado Marvel Sutantio, who set up a blog Indonesian Movie Crisis after the MPA announced its boycott, sadly observed that more and more posters of upcoming releases are being taken down. Cineplex21 cinemas in Jakarta are still showing some new and old Hollywood films, but in an interview, Marvel Sutantion expressed his fears of the grim future for film fans like him.
The Indonesian government has defended the reform by repeatedly claiming that it is meant to protect the local film industry. Wacik Jero explained that he was acting upon the President Susilo Bambang Yudhoyono’s request to increase the number of locally produced films, creating jobs along the way. He added that this year’s objective was more than 100 domestic films[+] NoteFilm production in Indonesia has been on a rise since 2007, but declined last year: 54 in 2007, 91 in 2008, 83 in 2009, 70 in 2010.X [1]. Therefore, according to Jero, “The solution is to have zero percent tax on film production equipment. Another way is to reduce the number of imported films to a ratio of about 60:40 between local and imported films.”
Yet the official line that tax increase is meant to boost the local film production has fallen short of convincing the Indonesian film industry players. Massardi Noorca, the spokesman for 21Cineplex, Indonesia’s largest movie theater chain with more than 500 screens, claimed in a public statement that the new government’s policy “will kill the cinema industry in Indonesia.” He explained that cinemas screen 50 to 80 local titles and 100 to 150 foreign titles every year, and that the local production is far from capable of satisfying the demand. Movie producer Sheila Timothy suggested that instead of imposing a higher tax on imported films, the government should decrease taxation on local films, if they are indeed concerned with boosting the local production. Another prominent film director and producer Nia Dinata raised concerns that if import of foreign films is halted, the only winners will be the piracy business, as people will be forced to resort to the use of pirated DVDs.
Equally concerned are the Indonesian film fans. An article in Jakarta Globe concludes that they “are caught between a rock and a hard place after being deprived of Hollywood’s brightest stars and being forced to see only mediocre local films.” Film fans have taken to the Internet and social networking sites like Twitter and Facebook to express their discontent. The AP reports that a film fan wrote on Facebook she was outraged that the government was “taking away their right to watch high-quality films." A member of the Indonesian Harry Potterfan club claimed they were devastated at the prospect of not being able to see the latest movie that is scheduled to be released in July. In his latest post on the blog Indonesian Movie Crisis, referring to the government’s indecisiveness, Marvel Sutantion declares that there is still “no light at the end of the tunnel, only utter darkness.”

Photo credit : hsufehmi / Flickr
  • 1. Film production in Indonesia has been on a rise since 2007, but declined last year: 54 in 2007, 91 in 2008, 83 in 2009, 70 in 2010.
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