Cinemas still paying 25pc entertainment tax to Selangor despite 85pc revenue drop amid Covid-19; while FT, Penang give tax exemption

·6-min read
Cinema operators in Selangor said they saw their income drop drastically by 85 per cent during the Covid-19 pandemic last year, but still continued to pay the full 25 per cent entertainment tax to the Selangor state government without being given any discounts or exemptions. — Picture by Ahmad Zamzahuri
Cinema operators in Selangor said they saw their income drop drastically by 85 per cent during the Covid-19 pandemic last year, but still continued to pay the full 25 per cent entertainment tax to the Selangor state government without being given any discounts or exemptions. — Picture by Ahmad Zamzahuri

KUALA LUMPUR, Dec 16 — Cinema operators in Selangor said they saw their income drop drastically by 85 per cent during the Covid-19 pandemic last year, but still continued to pay the full 25 per cent entertainment tax to the Selangor state government without being given any discounts or exemptions.

Last week, Selangor Mentri Besar Datuk Seri Amirudin Shari was reported telling the Selangor state legislative assembly that the Selangor state government had lost more than RM50 million in revenue due to the state’s exemption of entertainment tax, including to cinema operators.

But the Malaysian Association of Film Exhibitors (MAFE) has clarified that cinema operators did not get any entertainment tax exemption from the Selangor state government, and that they have continued to pay the full rate of 25 per cent despite being hard hit by the forced closures during lockdowns in the Covid-19 pandemic.

MAFE was clearing the air after cinemas were wrongly blamed as contributing to the lesser revenue for the Selangor state government.

In a recent statement provided to Malay Mail, MAFE pointed out that only theme parks in Selangor were given a full exemption of the 25 per cent entertainment tax from March 18, 2020 until December 31, 2021 and that such theme parks will only have to pay the entertainment theme a reduced rate of five per cent for the next five years (January 1, 2022 until December 31, 2026).

Similarly, organisations of arts activities or ticketed events for local artists were also granted a reduced entertainment tax rate at 15 per cent instead of 25 per cent, with the new rate announced during the Selangor Budget’s October 30, 2020 tabling and enforced since January 1, 2021.

“However, cinema exhibitors to date have not received such exemptions and continue to pay the original 25 per cent of entertainment tax that has been in effect since before the pandemic,” MAFE said in the statement.

“Like other players in the entertainment sector, the Malaysian cinema industry has been severely impacted by Covid-19, with forced closures of more than a year with no income since the country went into its first lockdown in 18 March 2020.

“Cinemas nationwide have estimated losses of more than RM500 million per year, while cinemas in Selangor alone lost over RM80 million a year; a staggering amount which has resulted in the liquidation of the country’s third largest cinema chain, MBO Cinemas,” it said.

MAFE said the cinema industry’s current situation is a far cry from the growth it had experienced over the last 20 years, with cinema operators having made intensive capital investments to grow the number of screens in Selangor to over 324 screens in 40 cinemas and with each screen costing approximately RM2 million to set up.

“Pre-pandemic, cinemas in Selangor recorded a revenue of more than RM309 million but this dropped to a fraction of only RM45 million in 2020 – a drop of 85 per cent,” it said. Generally in business terms, revenue only refers to the income generated and without accounting for costs yet, while profit would be the actual amount earned after deducting costs and all other expenses.

MAFE concluded by expressing hope that the Selangor state government would give cinemas full exemption of the entertainment tax, which Penang and the Federal Territories were already doing for cinemas located there.

“Cinemas in Penang and the Federal Territories have already been granted an entertainment tax exemption in 2021, with the latter extending the exemption further until the end of 2022.

“MAFE is hopeful that the Chief Minister of Selangor will provide similar assistance to cinemas in the state, which will help the industry in its recovery from the pandemic,” it said.

Does Malaysia still need the British-era entertainment tax?

Earlier in the same statement, MAFE suggested that the entertainment tax which was established since the British colonial era—otherwise known as Entertainments Duty—is “archaic” or outdated, in the current competitive entertainment landscape where the latest movies can be accessed via streaming services companies (such as Astro, Disney+, HBO Max, Netflix, and Amazon Prime) that do not have to pay an entertainment tax.

Unlike the past where there was a traditional cinema window period, films are now even getting released on streaming platforms on the same day as their premiere in cinemas, MAFE noted.

“The imposition of the Entertainments Duty, solely on cinema operators, thus creates a disparity within the industry and an uneven playing field for exhibitors to compete with the likes of modern streaming services,” MAFE said.

MAFE also argued that it was time for Malaysia to consider doing away with the entertainment tax, which Australia, Hong Kong and Singapore had already abolished.

MAFE noted that even the UK—from which Malaysia based its initial laws on—had long abolished the entertainment tax as early as the 1960s.

“Malaysia thus needs to evaluate the benefits of the abolishment of the tax and its effect on the sustainability of the entertainment industry and its contribution to the growth of Malaysian arts and culture, as well as positive mental health and social development,” it said.

MAFE pointed out cinemas play a key role in entertaining and uplifting the spirit of millions of Malaysians, while also being a place where families can bond and share memorable moments together.

“It has also been a platform for the celebration of many local filmmaking achievements, with titles such as “Hantu Kak Limah”, “Munafik”, “Ola Bola”, “Paskal” and more contributing to the industry’s growth, with each in its own collecting over RM20 million per movie, putting them on par with successful Hollywood blockbusters.

“As the most accessible entertainment form available, watching a movie also provides a quick escape for the general public – an emotional and mental respite from daily stresses. This in turn helps maintain healthy mental states and fosters positive social interactions between audiences, which is key for keeping a nation connected and productive.

“The abolishment of the Entertainments Duty also enables exhibitors to provide affordable ticket prices for a wider demographic comprising the young, those with smaller incomes, and rural audiences.

“Abolishing the Entertainments Duty removes the barrier for audiences to come back to the cinemas, and in the long-term delivers greater benefits for the progression of the nation’s culture, health, and people that outweighs a temporary tax revenue reduction,” it said.

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