News / Asia

    Indonesian Tax Dispute Shuts Out Hollywood Blockbusters

    People walk past movie banners outside a movie theater in Jakarta, Indonesia (File Photo - February 21, 2011)
    People walk past movie banners outside a movie theater in Jakarta, Indonesia (File Photo - February 21, 2011)

    The months of June, July and August are when Hollywood releases its blockbusters, the big-budget films aimed at appealing to global audiences. But this year in Indonesia, an ongoing tax dispute between the government and film importers continues to shut out new releases and cinema owners say it is crushing their profits.

    B-grade horror flicks and Thai comedies like Dear Galileo, are among the limited choices facing Indonesian moviegoers this season. Nearly four months after the Motion Picture Association of America stopped sending films to the country in protest against a new tax levy, Indonesians say they are frustrated and embarrassed by not having access to the latest blockbusters.

    Film buff Walter Francine says he fears missing out on big-name summer sequels, some of which are already showing up in neighboring countries.

    “We’re quite disappointed actually," he said. "We cannot see Thor, Green Lantern and then Pirates of the Caribbean maybe. Some of my friends may be going to Singapore.”

    In January the Indonesian government announced it would start enforcing a long-neglected regulation that slaps an up-front royalty duty on imported films in addition to a customs tax that already charges importers $0.43 cents per meter of celluloid.

    The Motion Picture Association, which represents major studios such as Walt Disney, Paramount and Universal, says the royalty tax is unfair since it seeks to put a value on films before they have earned any revenue.

    Meanwhile, Indonesia’s tax department has billed its three main film distributors $3.6 million for two year’s worth of back taxes. It has suspended their import licenses until they settle up.

    One importer recently paid, but the other two are fighting the government in tax court. They are part of the dominant Group 21, which controls more than 80 percent of the 620 screens in the country and is the sole importer of Hollywood flicks.

    The Indonesian government says it is enforcing the royalty tax to boost the local film industry, but one cinema group leader believes it is in reaction to importers not fulfilling their tax obligations.

    Figures for Indonesia’s total box office take vary between $90 million to $150 million, slightly below Singapore, but twice as big as Thailand. With a population of around 240 million people and a rising middle class, there is plenty of room to grow, says Ananda Siregar, the head of Blitz Megaplex, Indonesia’s second-largest cinema chain.

    “Unfortunately, with the current situation happening, the ones who are going to benefit are either the pirates or Singapore, because most Indonesians who can afford to go to Singapore will fly up there and watch Kung Fu Panda there instead of in their own country, which is very sad,” said Siregar.

    The government says it is working to resolve the royalty duty, but Siregar worries that even if that issue is resolved, films will not start flowing back into the country until the distributors pay their back taxes.

    Since the film boycott started Blitz has shortened its operating hours and closed some screens on a rolling basis. The head of Indonesia’s cinema union says theaters have reported a 60 percent drop in revenue and independent cinemas are in danger of closing permanently.

    Some moviegoers say they understand the principal behind the boycott. The distributors should pay up, they say. As Arie Jony waited in line outside Jakarta Cineplex, he says the loss of revenue only harms the industry.

    “It’s very disappointing for me," he said. "Plus it will push people more to buying pirated videos, they will tend to download more films from the Internet and everything. So in my point of view there is nothing to gain by this ban.”

    While pirated DVDs are available for even the latest Hollywood releases, many Indonesians say they miss seeing the films in the theater.  Jony says he has stopped his weekly movie theater visits because of the limited selection of films. Moviegoer Amanda Waworunto says she too is dismayed by the lack of international offerings.

    “We actually admit that Indonesian film is very bad quality, so I will never watch it in theater anyway,” she said.

    A few Hollywood films from smaller studios not involved in the MPAA boycott are reaching Indonesia. The latest release, Scream 4, arrived nearly a month after its debut in the U.S. Meanwhile, movie-goers are missing out on Kung Fu Panda 2 and the latest installment of the Pirates of the Caribbean series. Many worry about being left in the dark when Harry Potter and the Deathly Hallows: Part 2 is released in mid-July.

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