Tax drama in Indonesia
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.