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ndonesian moviegoers will again be able to enjoy blockbusters from the United States, which stopped entering the country in February, after Indonesian authorities last week decided to change the way imported movies are taxed and thereby resolved its standoff with Hollywood.

While the new levy system for imported movies will almost double import tariffs, foreign studios will not likely remove Indonesia from their export list because of the country’s huge market potential with its population of 240 million and rapidly expanding middle class.

The new tax system, announced last Friday, will still give a fair margin to both importers and international studios, with tax burdens low enough for US studios to still profit from exporting films to Indonesia, and yet big enough to discourage the import of low-quality movies.

More importantly, the new system will remove uncertainty caused by the previous system, whereby the tax burden was assessed on the basis of how much money a film earned at the box office.

Film importers and international studios had rejected the old system as unfair because it was impossible for them to predict ticket sales until a film had hit the box office. The ad valorem tax system also required a complicated assessment, which was vulnerable to corruption given the notorious reputation of the tax office.

According to the Indonesian Union of Cinema Owners, every year about 50 to 80 local titles and 100 to 150 foreign titles are screened at theaters throughout the country, grossing around US$100 million in sales.

But the association had warned that if the government refused to revoke its import tax policy, it would kill the cinema industry and badly hurt restaurants and shopping mall investors.

The new system will impose a flat tax rate of between Rp 21,000 ($2.43) and Rp 22,000 per minute of film imported. Assuming the average length of a film is around 100 minutes, the import tax on films under the new system could reach Rp 2.1 million to Rp 2.2 million per copy. Since importers usually bring in between 20 to 40 copies of each title, one release then could cost importers up to Rp 88 million in import tax alone.

The new tax seems to have been designed to discourage foreign films from flooding the country, since the flat rate will force importers to be more selective in bringing in foreign movies. This, in turn, will help protect the struggling local film industry.

The resolution of the dispute over taxes on imported films is quite timely because the school holiday season (mid-June–July) is usually a peak sales period for theaters.

The remaining challenge now is for the government to end the cartel in movie distribution, because the stoppage of Hollywood imports to Indonesia since February seemed to have been a result not only of the tax dispute but also of what theater owners saw as monopolistic practices among film importers and distributors of Hollywood blockbusters.

The imported film debacle also should serve as another warning to the government not to issue complex tax rules or regulations that are prone to different interpretations, providing loopholes to corrupt officials and causing uncertainty to businesses.