TAX INCENTIVES IS A NECESSITY FOR KENYA'S FILM INDUSTRY

3/10/2016

I recently read an article by Kwame Owino a Daily Nation newspaper writer who published an article stating subsidies for wealthy movie studios won't help Kenyan film and as much as he laid out quite a few good pointers. I really don't think he was able to look at the full spectrum of how it could benefit Kenya's film industry before pronouncing it a dead end. So I will take a chance in demonstrating how I could possibly package the nitty gritty from the perspective of a Film Producer and a Minister/Cabinet Secretary. So hear it goes...

What is a Tax Incentive?

A tax incentive is an aspect of a country's tax code designed to incentivise, or encourage a particular economic activity.

The Argument

As far as I can tell, the biggest argument is based on the economic impact, which we can look at in the following three areas:

Opportunity costs: Since the state is required to maintain a balanced budget, the Department of Revenue assumes that any incentives that are provided to the film industry have to be paid for by saving money somewhere else in the budget. So instead of just calculating the positive effect that the tax incentives have on creating jobs,

they are analysing factors in the number of jobs that will be lost in other areas of the state’s budget due to cuts. Of course, these cuts have negative ripple effects throughout the economy just as the newly created jobs have a positive impact. By contrast, the Filmmakers only looks at the positive effects of the new jobs that are created.

Wages paid to non-residents: Jobs that are created by visiting film and television productions in Kenya will be held by people whose primary residence is in another country; The rationale is that most of the lodging, food, and incidental expenses for non-resident employees are paid for by the production company, so that only a small portion of the 'non-resident workers’ paychecks gets spent in our state.

“New” spending vs. total spending: Should Kenya Revenue Authority consider it beneficial to list TV shows and Films that would have been produced in-state, even in the absence of the incentives as beneficial? Filmmakers do not factor pre-existing film production into the equation, preferring to attribute all film productions activity to the incentive.

Despite the considerable differences, everyone agrees that the tax incentives have a positive impact on the economy. However, that’s not really saying much, since almost any form of government spending is likely to have a positive impact on the economy.

Is it necessary for Kenya?

To be clear, the film industry isn’t asking to be supported out of any particular concern for cinematic art (for now). As is the case with many other corporate tax breaks, the main reason for offering tax incentives for filmmakers is simply jobs, jobs, jobs. (Plus the controversial tourism promotion for the country...another topic in itself.) For a country that is struggling to make this jobs a reality for our many youth, I would say they need to package incentives sooner than later.

Away from the film industry, Kenya has and in some areas still does offer a number of tax incentives to foreign firms that manufacture goods locally for export, including a 10-year corporate income tax holiday and a 10-year withholding tax holiday on repatriated dividends and other remittances. Foreign investors are also exempted from paying value added tax (VAT), import duty on inputs, and payment of stamp duty on legal instruments. They qualify for 100 per cent tax deduction on new capital investments.

I personally believe the incentives offered above are quite damaging to the economy compared to the suggestions I will be offering below... I hope. Do share your thoughts in the 'Comments Section'

What I would implement - As Minister of Sports and Culture

I would start my declaring I AM ANTI CORRUPTION!! (That's a wink wink for you Mr. President on your next cabinet reshuffle). Moving forward. I really think looking at this incentive as a way of attracting foreign films to Kenya is not the right window to be looking through. I think looking at it as a way of providing jobs, training and growth to the Kenya's Film Industry should be the only window to package our incentives.

How I would tackle it is by providing a range of rebate options ranging from 33% to 10% for foreign film companies. At 33% you would need to satisfy conditions such as 90% of the Production needs to happen in Kenya, a strict number of above the line and below the line employees have to be Kenyan, notably you will need a Kenyan co-producer, with a minimum number of crew to be used, while at 10% rebate you will need to meet an amount of local expenditure threshold, a number of necessary below the line intakes and you would need to sell the tax credit to a Kenyan company to receive the cash.

I would however provide a 20% tax rebate for any fully Kenyan owned production that spent 1 million and above shillings within Kenya from pre production to post production. Tax credits to individuals or companies that invest 5 million shillings and above into a film or TV show that is produced and released in Kenya.

Why I need Tax incentives - As a Kenyan Producer

Lets get it clear there hasn't been any Kenyan Film that has publicly demonstrated the ability to make profits even Nairobi Half life that had audiences streaming into theaters for 6 straight months is said to have not broken even. This is not say our Riverwood Millionaires haven't made profits, they probably have but am not sure that's something they would all generously want the tax man to know or interfere with (something tax incentives can change).

So why would I need tax incentive? Well, under the blanket of no showcase of profit, making our Rich Kenyans, Banks, and Co-operates put their money into the risky business of films is nearly impossible but by providing rebates and tax credit, the government will essentially be stimulating investors to put their bets on the film industry without the fear of completely losing out if the production tanks or doesn't perform as expected. Otherwise it will need a miracle for filmmakers to start seeing proper investment into the industry.