Investors can allocate 3% of annual income for homegrown pix

Christmas arrived early for Mexican cinema last week when the Mexican government awarded a potentially huge tax incentive to local film production.

Starting Jan. 1, investors can allocate up to 3% of their annual income to homegrown cinema. The incentive is open to both pro and non-pro individuals or companies. Brazil, which has served as a model for many countries in the region, offers a similar tax incentive that only applies to nonshowbiz companies.

In a country that has few such incentives, and doesn’t even allow deductions for donations to charity, for example, such an opportunity could be particularly attractive to wealthy Mexicans. The stimulus is sorely needed. Mexico has seen domestic production decline precipitously in the past two decades.

According to figures released by the Mexican Senate, there were 212 productions in the last decade, compared with 747 between 1984 and 1994, a 71% decline.

“This is great news for Mexican cinema,” says Gabriel Ripstein, head of the fledgling production arm of Columbia TriStar Mexico.Company has four local pics in the pipeline.

Although the tax deduction has a cap — 500 million pesos ($43 million) per year nationwide — observers say that amount of money could make an enormous difference, especially considering that the typical Mexican feature costs less than $2 million.

“Mexico is known for its cinema,” says Sen. Javier Corral, who sponsored the bill to amend the tax code. “And even if many Mexicans can’t imagine what Mexican cinema once was, we legislators do know what an important cultural industry cinema is.”

The bill ultimately passed unanimously.

For many it’s about time. Sen. Cesar Raul Ojeda of ruling party PRD points to the number of Mexican filmmakers working in Hollywood and elsewhere for lack of support in their native country.

“I am convinced that ‘Y tu mama,’ ‘Amores perros,’ ‘Temporada de Patos,’ ‘El Crimen del Padre Amaro’ and ‘Ladies’ Night’ are a mere sampling of what Mexican filmmakers can achieve,” he asserts.

The new deduction is the latest in a series of moves Mexican legislators have made to boost production.

In 2002, a law was passed requiring exhibitors to pay a royalty on the government rating classification for every film shown. That tax was eventually struck down by the courts.

And in January 2003, a law went into effect requiring exhibs to charge moviegoers an extra peso at the box office. After much industry protest, principally by the Motion Picture Assn. and the leading distribs in Mexico, that law, too, was struck down in the courts.

Collections from both taxes were intended to go to financing Mexican productions; in both cases, court orders prevented that money from ever being used for that end.

Indeed, until the passage of this new deduction, the only stimulus the Mexican government gave to film was through its principal film funding institution, the Mexican Institute of Cinematography (Imcine).

The grantmaker awards homegrown productions up to 49% of their production costs and has an annual budget of roughly $14 million.

If a series of other initiatives presented two weeks ago win approval, local production could experience a boom as it has in Brazil and Argentina.

Proposed fiscal incentives call for exemptions on import tax payments, Value Added Tax (now only available to foreign productions) and compensatory quotas of filmmaking equipment.

Other proposals ask that Mexican filmmakers be allowed to deduct the value of assets used in the making of any film and for Mexican distribs of foreign films to allot 30% of their taxes to a local film production fund.

Producers have always had to find that other 51% in order to reach their goal,” says Sari Bermudez, head of Mexico’s Culture Secretary office, which oversees Imcine, among other film bodies. “That will be easier with this new incentive.”

(Bensinger reported from Mexico City, and De La Fuente reported from Hollywood.)

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