INDONESIAN cinephiles may be in for a disappointing year. Since February imports of Hollywood films have been on hold, and cinemas are running short of new ones to screen. The reason is a row over a fairly small amount of tax. Indonesia’s tax authority has started enforcing a long-neglected rule that the royalties on imported films are taxable as well as the physical reels of celluloid. It is demanding 31 billion rupiah ($3.6m) in back taxes for the past two years’ worth of imports. While the importers appeal against the decision they have stopped bringing new Hollywood blockbusters into the country.
The dispute has brought into the limelight a small but rapidly growing industry that is a vestige of what was once a web of monopolies and cartels that enriched relatives and cronies of the Suharto regime at Indonesians’ expense. Friends and family of the former dictator enjoyed exclusive franchises over whole industries, from essentials like flour and cement to luxuries like films. From the 1980s the Hollywood studios had to distribute their output through Group 21, a company in which one of Suharto’s cousins then owned a stake (his family has since sold this).
When Indonesia’s economy collapsed in 1997-98, bringing the regime down with it, the IMF insisted on the dismantling of the monopolies as a condition of giving aid. A fair-competition agency, the KPPU, was created, and Suharto’s successors opened up industries such as telecoms, banking and civil aviation. The entry of new competitors, Indonesian and foreign, has brought great benefits to consumers.
With their patriarch out of power and their monopolies busted, the Suharto family’s ventures have largely fallen by the wayside, though the wealth they amassed in the bad old days has spared them from hardship. Of the firms set up by the former regime’s cronies (ie, friends but not family), many are surviving in the new, competitive world, albeit without the dominance they once enjoyed. Indonesia is still plagued by corruption, red tape and rent-seeking, but its politics are so fluid that it is difficult for tycoons to lock down permanent gains, says Hal Hill, an expert at the Australian National University.
In the cinema business, however, the wave of liberalisation has been slow to arrive. The three largest film importers, which between them control the local distribution rights to all Hollywood blockbusters, are all part of Group 21, which also owns the country’s dominant cinema chain, Cineplex 21. It had the market almost to itself until 2006, when a new chain, Blitz Megaplex, began opening screens in shopping malls. In 2009 Blitz complained to the KPPU about Group 21’s dominance of distribution and the impact of this on rival cinemas, but the case was dismissed for lack of evidence. Today, Group 21, which declined to talk about the case, still controls more than 500 of Indonesia’s 600-odd screens.
Although some would like the KPPU to have been tougher in this and other cases, that the country has such an independent competition regulator puts it ahead of some of its peers in the region, notes Edimon Ginting, an economist at the Asian Development Bank. In 2010 the World Economic Forum placed Indonesia 35th out of 139 countries in terms of efficient trustbusting, a bit better than its overall business-friendliness ranking of 44th.
By Asian standards, Indonesia’s box-office takings are modest: around $150m in 2010, one-tenth of China’s. But they have doubled in the past five years (as has indigenous film production, which withered in the repressive Suharto era). Ananda Siregar, Blitz’s boss, worries that the row over import duties will lead to a prolonged drought of American blockbusters, halting that strong growth. Tax officials have said that their crackdown against Group 21 has only just begun. But instead of simply taxing the company more, it would be better if the authorities could find a way of giving its rivals a better chance at competing.
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