Are Tax Incentives the Answer for Thailand's Film Production Services Industry?

By Scott Rosenberg

Bangkok, Thailand July 26, 2009 - Recently, as the economic recession hits home across the globe, tax incentives for film location shoots are coming under question. Are they worth it? Do state coffers register on the plus side from film shoots or is revenue being lost? This article will take a look at some of the issues.

First we have to understand that of the over 74 countries and 83 localities offering benefits, incentives and tax credits for foreign location shoots NO 2 are the same. This makes it very difficult to evaluate the effectiveness of such measures.

The State of New Mexico (USA) has been providing tax incentives to film companies since 2002. The program has been successful in the sense that companies are coming to New Mexico to make movies. In the first fiscal year of incentives, two companies received credits for qualified projects. For fiscal year 2008, thirty-one projects qualified for tax credits totaling $38.2 million. Since the credits are for production related expenses in New Mexico and the credit for the time period was twenty-five percent, this implies that the industry spent $152.8 million on production in New Mexico during the year.

New Mexico offers not only a 25% Film Production Tax Rebate on all qualified direct production expenditures in the state but also a Film Crew Advancement Program - an on-the-job training program which offers a 50% reimbursement of wages paid to New Mexican crew members in below-the line job positions to provide them with work experience to assist them in obtaining continual work in the industry.

On the other hand, The Federal Reserve Bank of Boston's New England Public Policy Center released an analysis of Connecticut's film tax credit program that's costing the state almost $90 million per year. The research suggests that the state's tax incentives may do more harm than good.

Some of the key points:

1. The credit does not pay for itself.
2. The economic benefits generated by the credit are likely to be short-lived.
3. The film tax credit may be less cost-effective than certain other business tax incentives offered by the state such as the research and experimental expenditures credit.
4. There is a race to the bottom among states competing to offer the greatest film industry incentives. It may be difficult to establish a sustainable film industry.

In Ireland, a whole different scenario is taking place. Recently a group has been calling for the scrapping of the Irish Film Board which would axe 16 people and save the government US$ 32 million.

The group calling for the dissolution of the Film Board proclaimed, "Given the scale of tax expenditure ($679 million since 1993 and $46.5 million in 2008) via the tax incentive scheme for this sector, and given the level of international competition in this market space, there is no objective economic case for subsidizing the Irish Film Industry.”

And the list goes on and on.

So what does this mean for the Thai production services industry which has been lobbying the Cabinet for tax credits to increase its competitiveness in the world market in attracting international production shoots to its shores?

Deputy Commerce Minister Alongkorn Ponlaboot announced on July 23 the Commerce Ministry would propose to the Cabinet in August a tax refund of 15-20 per cent for international production houses using Thailand as a film location.

The Kingdom now earns approximately Bt 2 billion (US$ 58.9 million) a year from international firms using Thailand for shooting, but if an incentive policy like a tax refund were in place, that would rise to Bt 20 billion ($588.4 million), the Minister maintained.

In addition, a White Paper on Advantages of Foreign Production Filming in Thailand developed by the private sector Foreign Production Services Association claims that presently there are an estimated 50,000 people working directly and indirectly in the filming industry. That number is estimated to increase to 65,000 after the introduction of filming incentives as the filming industry will have an overall positive growth.

The problem is how will Thailand measure the results of such tax-credits? The West has very specific based economic modeling systems to measure results. Even the very positive New Mexico study maintained that each modeling system has well known advantages and disadvantages and results could alter depending on which is used.
Are such forecast an measuring models utilized here? I don't think so.

It is true Thailand needs to remain competitive in a VERY competitive international marketplace but can't this be done by more specific bi-lateral audio visual treaties with individual nations?



True you have the same measurement difficulties but with varied benefits and the fact that "two heads are better than on" it may be easier to track results.
Thailand is already one of the most popular international locations for foreign production shoots – the Thai "brand" is strong.

Let's not move hastily but spend a bit of time studying the situation first.