Queen of Katwe opens in theatres around the world this weekend, but a tax row between the Ugandan government and Walt Disney Corporation, which funded the movie’s production, is certain to fuel debate about Kampala’s commitment in the creative economy.
Studies by Unesco, the United Nations Development Programme and the British Council have concluded that the creative sector possesses enormous potential to create jobs, generate income, increase export earnings and generally drive new levels of growth.
At the onset of the movie’s production in 2014, the government insisted on assessing tax on Disney’s disbursal account meant to pay service providers. Uganda Revenue Authority officials said that it was the company’s income and taxed the entire amount of money that was spent on production.
A key member of the production staff told The EastAfrican that Disney had to pay extra VAT for companies that were already paying taxes.
“They tried to negotiate but were repeatedly rebuffed. It was essentially double taxation,” said the source.
At some point when the government realised that the Hollywood picture was set to boost its international profile, Prime Minister Ruhakana Rugunda met with Disney executives in New York in search of alliances, and reportedly promised, among other things, to refund at least $500,000 of the tax that URA had excessively charged Disney on the principal shoot.
The money was supposed to be included in the 2016/17 budget, but it was not, and Disney representatives in Kampala have no hope it will be paid soon.
“They should have already paid up if they were really serious about it. We have been in negotiations that are time-consuming,” said a source familiar with the discussions.
URA’s defective assessment not only reflected a problematic taxation system, but also exposed the absence of incentives such as tax rebates, which some countries use to lure foreign companies to produce large budget films in their backyards.
This is one of two main reasons (the other being excellent production facilities and more experienced support personnel) that Disney opted to film two-thirds of the movie in South Africa.
Pretoria has placed a high premium on the film industry, because of its potential to create direct and indirect employment for people from different sectors of the economy; enhance its international profile; and increase the country’s creative and technical skills base.
The rewards to South Africa and Disney have served to underline what Uganda’s arts and culture fraternity rightly see as wasted opportunities of shooting Ugandan stories inside the country.
“Better financial incentives would, for example, attract big-budget films, which come with various opportunities for learning and polishing craft in film,” reads a draft petition to parliament over the government’s contested plans to redevelop the Uganda National Cultural Centre — the home of the cultural and creative industries — through a public-private partnership.
For filming in South Africa, Disney netted tax refunds of up to 25 per cent, or $1.8 million, on all production costs. Pretoria, on its part, retained at least $6 million in qualified expenditure, according to documentation submitted to the government as part of efforts to lobby it to set up a tax rebate system and a film commission to initiate and implement incentives.
Queen of Katwe is not the only big-time production Kampala has lost to Pretoria. There was White Lightand The Machine Gun Preacher in 2008 and 2011 respectively.
This year, two high-profile feature projects were run out of town by exorbitant charges that, in some cases, kept being reviewed upwards.
“Studies show that film tax incentives have generated significant private sector benefits in the countries in which they have been adopted. These have generated thousands of production jobs, increased tourism activity, channelled investment in industry infrastructure and stabilised the retention of existing activity,” reads the brief on tax rebates submitted to Mr Rugunda for review.
“The examination of the full range of economic benefits from film incentives, the impacts of tourism and capital investments can be more significant than the impact of the film production activity. Significant increases in tourism can be tied to film productions. In some cases, widely viewed films increased tourism to featured locations by more than 25 per cent.”
South Africa, which the film tax rebate lobbyists benchmarked, earns about R3.5 billion ($257.8 million) per year from its film and television industry, according to a 2013 study by the country’s Department of Arts and Culture.