FILM HIRE TAX.

Otago Witness, Issue 3994, 30 September 1930, Page 50

FILM HIRE TAX.

FURTHER STATEMENT BY MR RANSOM.

WELLINGTON, September 22.

A further statement on the film hire tax controversy was made by the Acting Prime Minister (Mr E. A. Ransom) today in reply to the comment made recently by Sir Victor Wilson. “ Sir Victor states that I had admitted to him that the tax is not a net tax,” said Mr Ransom. “ This is merely a play on words. This film hire tax is certainly not an income tax on profits, but as already pointed out is the nearest possible equivalent to an ad valorem Customs duty dbased on the net rentals received in New Zealand. By net rentals is meant the gross rentals received by the renters, less the amount on which income tax is payable and its administration expenses in New Zealand. To have further deducted the production costs would have made the tax an income tax. and as T have just stated it is intended to be the equivalent of a Customs duty. “ Sir Victor Wilson challenges me to publish a message I have received concerning the attitude of the British film interests. I take strong exception to this, as it is not the practice of the Government to make statements not based on fact. The cablegram from the British Dominion Films that I referred to is dated September 10, and states, inter alia, that ‘ we intend to continue trading with New Zealand, fully anticipating your Government making provision substantially modifying the existing legislation, thereby demonstrating its desire to encourage rather than destroy our efforts to assist the British film industry.’ To this I have replied stating that the question of reviewing this tax will be considered when it has been in operation for a reasonable time.”

BRITISH FILMS.

J.TTITUDE OF DISTRIBUTORS. WELLINGTON, September'22

Replying to the Acting-Prime Minister’s statement concerning the film tax. Sir Victor Wilson said\that Mr Ransom had published the text of that part of the cablegram from the British Dominion Films which h e 'said he had referred to in his statement to the press last week. The Acting-Prime Minister had contrasted the action of the British Dominion Films in regard to the proposed taxation with that of the American producers, with the clear intention of leading the public to assume that the British distributors did not resist the tax. “ A fair pharaphrase of that cablegram,” continued Sir Victor "Wilson, “ is as follow’s: —‘ Will continue to operate as before, having reason to believe Government will alter its taxation in order to show desire to help British film industry and not to destroy it, as would be done if its present taxation proposals are persisted in.’ Is this cablegram an admission of the British Dominion Films that the proposed taxation will not ruin them” asked Sir Victor, “or a clear indication that the Government will realise that it will ruin the British film industry in New Zealand, and therefore will not persist in it? The cablegram sent to the Prime Minister by British Dominion Films, which I had in mind when I made my rejoinder to the Acting-Prime Minister, read as follows: —'As onlj- absolutely British company in dominions handling British films exclusively, and having lost more than £20,000 last year in our strenuous pioneer work on behalf of British films, we respectfully but strongly urge that proposed taxation on British films will have most disastrous results in regard to British films. We appreciate necessity of your Government obtaining revenue, but would respectfully suggest that revenue tariff of increased duty on foreign films should be substituted.— Turnbull, managing director, British Dominion Films, Melbourne.’”

“The Acting-Prime Minister has had this cablegram before him,” continued SitVictor. “ Its meaning is clear. Does the latter cablegram show a change of opinion on the part of the British Dominion Films? Do not both cablegrams mean that the proposed taxation will ruin the British .film industry? ”

THE TAXATION CONTROVERSY.

FURTHER STATEMENT BY MR RANSOM.

WELLINGTON, September 26. In view of the lengthy statement on the film hire tax recently published by Sir Victor Wilson, the Acting-Prime

Minister (Mr E. A. Ransom) to-day issued the following statement: —

“ The film industry is admittedly a very difficult one to understand, and Sir Victor Wilson in his statement has taken advantage of this difficulty to confuse the issue.

To understand the position it must be realised that 80 per cent, of films screened in New Zealand are distributed by companies owned and controlled by the, American Film Corporations. It should be also noted that the price charged to a local company for films is not a fixed or stated amount, but a percentage of the gross rentals received by that company from New Zealand theatre proprietors. “ During the exhaustive inquiry which was made into the industry by a parliamentary committee in 1928 it was found that not one of the local subsidiary companies had any information available as to the cost or the value of its films. It is therefore impossible to make a comparison, as Sir Victor Wilson attempts to do, with an ordinary business where an exact knowledge oi the cost of the goods is the first essential of all dealings. The production costs of films have no bearing on the receipts from sales or the proceeds from renting the films which are very largely dependent on the incalculable factor of public fancy, which varies from country to country. For this reason the allocation of the proceeds received and generally the whole finance of the film industry in the Dominion is based on and works backward from the box office receipts. If this has been found to be the most practicable basis for the general finance of the industry it is obvious that it is the most equitable basis for taxation.

“ Sir Victor Wilson says that additional revenue could best have been obtained by a flat Customs duty of so much per foot of film imported; but it will be clear to all that when one film brings in perhaps £lO,OOO and another perhaps only £lOOO, that such a basis of taxation is quite unsound. It would be just as logical to tax cloth by the yard regardless of whether it was silk or cotton. Further inquiries showed that since the previous investigation in 1928 the rentals received from the New Zealand theatre proprietors had doubled, but the amount collected in Customs duty on the footage basis had decreased by over £lO,OOO. It was therefore evident that the tax was unsatisfactory and that the renters were escaping reasonable taxation.

“ It is stated that the distributors had offered a guarantee that the increase in the footage tax would not be passed on to the existing contracts. While this is correct it does not amount to much, as the contracts are of comparatively short duration and are maturing daily. Further, the suggestion of the distributors was that a 24 per cent, tax should be levied upon the whole of the box office receipts to be borne by the various parties concerned in accordance with the allocation of those receipts. This, however, would have been unfair to the exhibters, who already have to pay local rates, and and income taxes, and are affected by the amusement tax. The offers of assistance were thus mostly suggestions to place the tax directly on other parties. “ The film hire tax is an ad volorem one, based on the real proven import value of the film; —that is, the actual rentals received, less the actual costs and assumed profits. Thus, if it be borne in mind that the percentage of the gross rentals received by an American corporation is, in fact the cost price to the New Zealand subsidiary, and that this cost price is the ‘ net receipts ’ or the import value on which the ad valorem tax is imposed it will be apparent that Sir Victor’s objections to the principle of the tax fall to the ground. The basis which he states as impossible—i.e., * that the total duty is unknown until the film has completed its circuit ’ —is exactly the basis on which the whole industry operates. “ Exception is taken to the fact that 12| per cent, of the gross rentals received is regarded as income for the purposes of taxation; but the reason for this will be evident from the facts stated above. As there are no import values apart from the net receipts from the sales it was obviously open to the film renters, by arrangement with the parent companies in America in regard to the amount to be debited in the books as 'buying prices, practically to escape income tax altogether. “ In connection with the alleged assurances given on August 8, I may say that the Prime Minister accepted the audited figures supplied by Sir Victor as the basis for reviewing the Budget estimate, which was subsequently increased to £50,000 for eight months, but not to the figure of £97,000 for- 12 month as stated by Sir Victor, fhe promise given by the Prime Minister was not that the Budget figure would not be increased, but that the matter would be considered by Cabinet. Between the acceptance of these figures and the introduction- of the Finance Bill, however, the position changed .owing to the fact that Cabinet decided to modify the proposed taxation on the industry by the removal of amusement tax on the lower-priced theatre seats. Accordingly, the Cabinet decided on August 11 to retain the film hire tax at the original percentage. This fact was clearly stated by the Prime Minister during the debate on the Bill. “ With regard to the amount of taxa-: tion I would like once again to stress the comparison previously made between the New Zealand and Australian figures. Sir Victor Wilson himself estimated the latter at £447,000, and on a basis of the comparative rentals received in the two

countries the New Zealand taxation would be 26 per cent, of that' sum, or £116,000. Even Sir Victor’s estimate of the corresponding New Zealand taxation, which the Government considers too high, does not reach this figure. In 1928, when the increased taxation was proposed, the film renters based their case on a comparison with the Australian taxation; but in the present instance they have pointedly omitted this phase of the question. “In his statement Sir Victor quotes a certificate from a local firm of account-, ants to the effect that, based on filtq hires for a period of 10 weeks, the tax would produce £88,500 in a year. This would mean £59,000 for eight months without any allowance for a probable falling off in receipts on account of the hard times against the Government’s estimate of £50,000; so that it will be seen that there is very little basis for all the agitation on this point. “In conclusion, I may say the film hire tax was very carefully considered by the Government before the legislation was passed, and the Government cannot agree to amend that legislation until we have had some experience of the tax iq actual operation and definite defects or real hardship can be shown to exist. As the industry is carrying, with comparative equanimity in other countries, taxation at least as heavy, if not heavier, than has been imposed in New Zealand, it is quite evident that the amount tej be paid until such time as a review caq be made will not cripple the industry. Therefore, it is clear that the action being taken by the film renters at the instigation of the American film organisations is being directed solely at the form of tax. In this connection I have to say that the Government' will not; consider further taxation on a footage basis, but is willing to hear any representations in regard to the taxation oq an ad valorem basis with a view to pos: sible legislative amendments next ses: sion.”