The South African film industry enjoyed some Hollywood glamour when My Octopus Teacher won an Academy Award for best documentary.
However, back home there is growing uncertainty about the financial future of the industry. A relatively unpopular tax incentive will come to an end soon, but the main concern centres on the film and television production cash incentives offered by the Department of Trade, Industry and Competition (dtic).
Industry players describe these cash incentives as “critical to prevent the implosion of the local industry”. The incentives include the foreign film and television production and post-production incentive, the SA film and television production and co-production incentive, and the SA emerging black filmmaker incentive.
Guy MacLeod, leading entertainment lawyer and director at Irish MacLeod, says international productions can spend anything between R50 million and R500 million in SA.
“We need these incentives in order to be competitive with the rest of the world.”
Although there is inherent value in shooting films in SA due to the exchange rate there will certainly be a negative impact should the dtic incentives dry up.
The big incoming productions have shown that for every R1 the studio might get back (in the form of an incentive), they spend R4 in SA on hotels, car hire and travel, says MacLeod, whose company has been credited in academy award winners and nominees such as Invictus, District 9 and Mad Max 4: Fury Road.
Even if government is giving some money back to the industry through the incentives, it is still earning far more thanks to the industry, he remarks.
Glen Bresler, director at Meredith Harington and specialist auditor of the film industry, says the incentives have operated very well and have been around for 17 years.
Unfortunately, there have been several “hiccups” recently, with an increase in the number of rebate claims being denied for reasons that are not entirely clear. “It is quite concerning as our industry will not be able to compete internationally if these incentives fall away,” says Bresler.
Some of the decisions for not allowing the rebates are so illogical it’s difficult to understand what is behind the reasoning.
“It is not clear whether it is an issue of skills, politics or finances. I do not know, but what I do know is that it is quite unfortunate,” he says.
The South African Institute of Tax Professionals (Sait) said in an earlier submission to National Treasury that the film industry creates employment at a grassroots level, and that the supply chain is “massive”.
It offered some suggestions following the announcement in this year’s budget that the film tax incentive – section 12O – will lapse at the start of 2022.
“Rather than withdrawing the incentive, we recommend investigating the viability of expanding the incentive to encompass the creation and development of broader media technology, such as the intellectual property created in programmes created for broadcast for example to Netflix, as well as electronic games and similar content.”
Technical and too complex
Sait and industry players agree that the section 12O tax incentive in its current form is very technical “with barriers perceived as too complex”. It replaced section 24F, which was done away with because of abuse.
“To be honest the tax incentive was hardly ever used,” says MacLeod. “I am not really aware of any products where SA taxpayers took advantage of the incentive, purely because it was very complicated.”
Besides the incentive being complicated, people “run a mile” when they hear about the intricacies involved in funding a movie.
Easier to borrow from foreign banks
“The truth of the matter is that for South African producers it is easier to obtain lending from foreign banks than from local institutions because the money is cheaper and they know what they are doing. They understand the business,” says MacLeod.
“It is nobody’s fault; it is just a very complicated process … In this country the institutions are generally more interested in bricks and mortar industries.” Film and technology are intellectual property industries; there is no collateral. The only security is the script.
“Sect 12O is and was highly complicated, but a far bigger challenge was to get taxpayers to the table in the first place because of how the business works,” says MacLeod.
Low revenue cost
According to Keith Engel, CEO of Sait, the revenue cost of the tax incentive is very low because the net revenue from films is small given the number of loss-making films. The most important point is to continue the exemption for dtic film grants, which is in line with the exemption for other government grants.
Bresler notes that the film industry everywhere in the world receives some form of government assistance. “It will be devastating for our industry if these incentives were to fall away.
“In fact, I think it could take the industry back 25 years if it is to happen.”
Nicole de Jager, specialist in government and tax incentives at KPMG, says the film tax incentive, as a percentage of the total corporate income tax support, has been less than 1%.
In 2016-17 the total corporate income tax support from government amounted to R16.6 billion of which R15 million was taken up by the film incentive. In 2018-19 the total corporate income tax support grew to R20.9 billion, however there was no uptake of the film tax incentive.