Ulma Haryanto & Camelia Pasandaran – Undeterred by growing protests from the film industry, the government said on Tuesday that in addition to having to pay a higher tax, foreign film importers could also face hefty fines for unpaid royalty taxes.
"Based on an audit by the customs office, there are still unpaid obligations regarding import duties – the royalty tax – and there is quite a hefty fine for that," Finance Minister Agus Martowardojo said at Bogor Palace.
According to the Finance Ministry, the customs value of imported films had previously been based on the physical length of the film roll, with each meter valued at 43 cents.
Now, the government wants to tax royalties up front, because a 2006 law on customs stipulates that royalties should be included in the import tax calculation.
The royalty value, Agus said, depends on the agreement between the foreign distributor and the importer. He explained that when importers paid royalties to production houses, this payment was also subject to value added tax and income tax.
"I will ask the customs office to accelerate its audit," he said. Agus also said that the procedures for customs to bill importers were still being discussed.
Thomas Sugijata, director of excise at the ministry, said any parties that had an objection should submit a formal written complaint to the ministry. "That's normal procedure but we haven't received any yet," he said.
Darussalam, a tax expert from the University of Indonesia, said the main problem was a difference in interpretation of the term "royalties."
"The customs office, as a state body, can determine what constitutes 'royalties' as it sees fit to impose a levy on films, while importers have their own interpretation," he told the Jakarta Globe. "If the customs office finds that the importers have not been paying what it interprets as royalties under the law, then the importers are of course subject to fines."
Darussalam advised importers to file a complaint with the tax court and let it decide the matter.
Prominent film figure Noorca M. Massardi argued that a tax should only be imposed on imported items. "Films are copyrighted materials," he said in a letter to Kompas.com. "People can only watch films screened at cinemas, they can't bring the films home. The government is disrespecting and exploiting copyrights if it continues with the new regulation to charge the distribution rights."
The Motion Picture Association said the government's decision to include royalties in its import tax calculation would be detrimental to the flow of imported films into the country.
It said that Indonesia had historically followed internationally accepted practices by assessing import duties on films on a per-meter rate, a practice adopted by major film markets around the world.
"This regulation has a significant detrimental impact on the cost of bringing a film into Indonesia and has introduced substantial market uncertainties," Mike Ellis, president and managing director of MPA Asia Pacific, told the Globe in a statement.
Ellis said the MPA and its member companies, including some of the biggest studios in the United States, had been in discussions with government officials for the past three months on this matter. The statement also said the MPA would like to clarify that there had been no joint commercial decisions discussed or undertaken.
"Decisions on the release of films in any market across the world are always individually determined by each studio member of the MPA based on their respective business concerns and in response to current market conditions, including any applicable import duties," it said. "The MPA is not involved in or responsible for the distribution of its member companies' films."
On Thursday, the MPA said it would halt supplies of imported films to Indonesian cinemas pending the settlement of the dispute.