To Hell with Your Films

No one denies that we need foreign films, particularly films from Hollywood. They are good for entertainment as well as a source of inspiration for life. They serve as a creative reference for our filmmakers.

Nonetheless, I am not certain if there is anyone among us that wants to exchange an infatuation for Hollywood films for the loss of our national sovereignty.

“Deal or no deal” is a normal attitude in business. What is extraordinary is when business partners refuse to follow the rules that have been enacted in their partner country, then provoke the people with misleading information. Included is the suggestion of pushing the public to “resist” legal tax provisions. In fact, this law constitutes a mandate for the entire country.

Facts such as those are carried out by producers/exporters of U.S. movies in the Motion Picture Association of America organization in Indonesia. They refuse to pay the obligated taxes.

The director general of taxes circulated a letter dated Jan. 10, 2011, reminding them of the tax obligations on the distribution and royalties of films that came into effect dozens of years ago. This tax is composed of import duties (10 percent), Value Added Tax [PPN] (10 percent) and Income Tax [PPh] (2.5 percent), for a total of 23.75 percent.

This circulation, which is meant to remind the film industry of these obligations, was immediately construed in a reactionary way by the MPAA, which stopped supplying their movies in this country.

It is not the boycott that really disappoints us. Their internal partners here, the Cinema 21 businessmen and the league of film importer companies in Indonesia (Ikafifi) are not advising their partners to fulfill their financial obligations. On the contrary, they are dramatizing the MPAA boycott as if it is already doomsday, even though they know any tax appeals have to be submitted to the related agency, not to the press.

“We already asked them to deliver a letter of appeal. Nonetheless, until this day we have not received that letter,” said Heri Kristiono, technical director of customs of the Directorate General of Fees and Excises, to reporters on Feb. 21. It is not clear what goals are behind the MPAA’s choice to politicize this appeal through the press.

In the information presented to the press, it was strongly suggested that the government wanted to harass them and claimed the government is withholding the people’s right to receive new entertainment. These are the methods that caused objections from Indonesian filmmakers. That method was considered too much because it pitted the people against the government.

In fact, if we intelligently analyze the issue of this film import tax, the facts are actually the reverse of what the MPAA told the public.

First, the tax on the distribution and royalties of films is not a new product of the Director General of Taxes. It is an old provision that was neglected for dozens of years. Meaning, imported movies have really been delinquent for a long time in their obligation of distribution taxes.

Second, the tax obligation that they have been exerting for this long is only import taxes, PPN and PPh, totaling 23.75 percent of the copy of the film alone.

The movie “Avatar” that succeeded in earning 55 billion Rupiah during its run in Indonesia is an example of this situation. Based on the royalty tax provision, the MPAA should pay 23.75 percent of the producers’ share (45 percent x 55 billion Rupiah). That did not happen. They have only paid 23.75 percent of the price of a copy of the film, which amounts to about 3 million Rupiah per copy. Meaning, if Avatar circulates 100 copies, the total that they deposit into the country is only 300 million Rupiah.

2010 Data

In the year 2010, there were 65 Hollywood film titles belonging to the MPAA that were circulated in Indonesia. The total income from audiences was 765 billion Rupiah. What they have newly paid from taxes on all the film copies of the year 2010 was only around 5 billion Rupiah. Meanwhile, the tax on film royalties has not been paid at all. Imagine the amount of tax money in arrears if 15 years had already passed with the yearly royalty earnings averaging above 700 billion Rupiah.

The issue regarding the threat that cinemas would close if boycotted by the MPAA is even more misleading. Every year U.S. movies that are shown here number 160 titles, only around 70 of which are owned by the MPAA. The rest are non-MPAA U.S.-produced films. This does not include other foreign films: Indian, Chinese and European. Don’t forget that our national production averages 70 titles a year, which in reality often encounter difficulties obtaining a schedule of rotation.

So, there are still a large number of U.S. films that will fill cinemas. Non-MPAA U.S. film importers in Indonesia even stated that they are ready to increase the amount of their supply. This is because the fact is, every year 500 to 600 titles are produced in the U.S. At most, only around 20 percent are non-MPAA-produced.

Besides that, the argument that all movies produced by the MPAA are quality movies that will earn money is not entirely true. From 2010 data, good films with good earnings belonging to the MPAA only amounted to around 15 titles. This is quite balanced with non-MPAA-produced films.

Then, why were the tax provisions on film royalties “suspended” for so long, and who suspended them? This question is quite tempting.

A strong guess is that this issue is tied to the Tax Laws of 1983, that in the beginning of their enactment did not specifically regulate the issue of royalty taxes.

Besides that factor, do not forget the “service” of Sudwikatmono, who in the mid-’80s became a film importer and established the modern cinema network, the 21 Group. As compensation for his investment in the industry, it is a strong possibility that, at that time, the government facilitated the suspension of taxes for a period of time.

An important step taken by that film industry businessman Sudwikatmono (Pak Dwi, now deceased) in that era was consolidating film importers. To confront the producers and exporters of MPAA films that were fond of playing with prices and setting our importers against each other, Pak Dwi united importers into one association in order to face the MPAA.

For the first five years, that idea was successful. The world of cinema flourished again. The passion to produce and import films increased. Audiences returned to cinemas to watch movies. But, the MPAA was not satisfied with this situation. They then created various troubles.

One of these was when the government wanted to boost national film production by lowering the quota of film imports. The U.S. immediately waylaid this with the ultimate weapon, namely Super Act 301. They banned plywood and textile exports from entering the U.S. Even we surrendered. This happened in the year 1992.

After that, through its agents in Indonesia, the MPAA has practiced divisive politics in the filmmaking industry. Their association and the 21 Group network were accused of being monopolies. The commotion of the monopoly issue in this country was used by the MPAA to boycott the association, and in turn, sold films directly in Indonesia, to its associates and the 21 Group network. The MPAA only gave a compensatory fee of 15 percent for the regulation of the showing of MPAA films in Indonesia. This is the period when importers again became laborers in their own homeland. The MPAA’s associates and the 21 Group rose as their partners and representatives here. That is what is still being done today.

It is indeed ironic. They ousted Pak Dwi for monopolizing. Nonetheless, in the practice that followed, all of Pak Dwi’s facilities, earlier identified as monopolies, were in fact those that benefited and enjoyed the suspension of taxes on their film royalties until now.

And now, after the government has enacted a tax increase by again collecting taxes on imported film royalties, the MPAA has immediately boycotted.

It is hard for us to understand how the U.S., a nation that claims to be a champion of democracy and taught the importance of raising taxes to finance democratic improvement as a nation, now clearly refuses to pay taxes.

And that is very surprising because it happened when we were in the middle of firing up the courage to raise taxes, with the consequence that we must indiscriminately take action against anyone that deviates from, evades and avoids them. Now we see that a champion of democracy blatantly refuses. This is what people often call American democracy: democracy whose end is money.

I myself am not certain that the MPAA would hold a long-term boycott. As many as 237 million Indonesians form a market that produces large earnings for the U.S. film business. Look at their income data from 2010. The royalty taxes that they are obligated to pay are still very small compared to incomes that are very abundant.

It is an appropriate time to say “to hell with your films,” when a fondness for American films must be traded for self-worth as a sovereign nation.