News on Indonesia Today

The Indonesian Government stand off with the movies producer/ exporters through Motion Picture America Association or MPAA is still continues. At the moment there are no movies from Hollywood or USA played or distributed within the country since the MPAA boycott last month.

The heart of the problem lies in the tax calculation imposed by the Indonesian Tax Office (ITO) towards the movie producer and by extension the MPAA.

MPAA and ITO, whos gonna blink first

Any goods imported to Indonesia will have to pay taxes and in the case of movies plus royalties. Those taxes are usually import duty (10 percent), VAT (10%) and Income Tax (2.5%) totaling of 23.75%. The movie producer have been paying that, otherwise they would not have been able to distribute their movie in Indonesia.

The difference is not in the amount but where the number should be derived from. The producer based their calculation on the cost of the celluloid, not what is in the celluloid but the cost of the physical celluloid itself. At the moment the celluloid cost for a movie is around USD 1,200 which means for each movie imported the producer pay approximately USD 300. Supposed a movie like Wall E imported 100 copies of celluloid to be distributed to all cinemas in Indonesia, the total tax and royalty is USD 30,000 for the whole movie.

The ITO argues that the calculation should be derived from total income. For the same movie, say Wall E made a total of USD 10 millions of revenue, the tax should be derived from the percentage obtained by producers which is at the moment is 45%, the other 55% goes to the cinema operators which is taxed separately, of USD 10 millions which is USD 4.5 million. Based on this number the movie producer should instead pay the tax of just a little over USD 1 million.

At the moment the fight is being played out in media, the MPAA accused the Indonesian Government of extortion and depriving the Indonesian people of quality entertainment while the ITO says that the MPAA is politicizing the matters and pitting the people against the Government.

“We have asked them (MPAA) to lodged an official complain (if the want to), until today, we have not received such complain” said Heri Kristiono Directorate General of Custom Technical Director to the press on Monday.

Indonesian movie industry support the ITO action because at the moment the taxation regime applied to local movies producer is derived from their total production cost which is certainly more than USD 1,200.

If movies are no longer produced in celluloid and instead use a blue ray disk or something similar and only need one copy instead of 100 like right now, MPAA could potentially be paying USD 6 in taxes and distribution/ royalty for movies like Gilligan Island.

Obviously something needs to be agreed as big as the MPAA is, no company can just turn their back on a market as big as Indonesia. The ITO also needs to answer some questions as to why the movie producers was allowed to deferred their tax payment as one lump sum payment with this magnitude (going back years) will cripple even the strongest company

Or maybe this is just what the local movie industry needed to flourish and dominate the Indonesian market like in the 60s.

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