Russia is not only a key market for American movies – it is an integral part of film history, an avid and storied producer and consumer of cinema. Why, then, is the Russian government considering a new tax on tickets that will make moviegoing a thing of the past for most Russians? HFPA’s own Serge Rakhlin investigates.
Terminator: Genisys’ total box office take in North America (USA and Canada) was a very disappointing $86.3 million. In Russia, however, the most recent Arnold Schwarzenegger vehicle hauled upwards of $12.5 million in the opening weekend alone, an amount a bit higher than the total Russian box office of another American blockbuster, Mission: Impossible – Ghost Protocol (2011).
Russia has been and remains one of the most attractive international markets for
Hollywood, taking the number 8 spot in the top 10 markets, according to the Motion Picture Association of America’s 2014 report. The Russian film market also owes much, if not all, to American movies: in the first half of 2015 the Russian box office rose by 3.7%, thanks mostly to foreign (read American) movies. Russian films have grossed 3.3% less than a
year earlier. According to the results, there were only four profitable Russian films, but in the final tally Russian producers could lose $142.3 million this year alone. 82% of the
whole Russian box office in 2014 came from foreign films, the vast majority of which
were American. This can soon change: this past June, 2015 Russian Prime Minister Dmitry Medvedev proposed the introduction of Value Added Tax (VAT) on tickets for foreign films. Until now, cinemas were exempt from this tax on tickets, both for foreign and Russian films.
Medvedev’s proposal was announced at a meeting with the crews of two Russian films, the successful The Battle for Sevastopol and the unsuccessful The Territory. “We have to give preferences to our own films, but do we have to give incentives to foreign products? It is not obvious”, Medvedev said. Just a few days after Medvedev’s speech Russian Minister of Culture Vladimir Medinsky said that his ministry will indeed introduce VAT on tickets for foreign films, and that the necessary internal measures are being taken, with the “full understanding” from Russia’s Ministry of Economy, headed by Alexey Ulyukaev. “It is unclear why our tax system subsidizes Hollywood”, Medinsky stated. “In addition,
(the new tax) will raise additional funds to support national cinema and theaters that
show Russian films.”
Russian filmmakers strongly oppose the measure. In an interview with Russian Kommersant newspaper Alexei Ryazantsev, CEO of one of the leading distribution companies in Russia, Karo Premiere (distributor of, among many others, Inception, Invictus, American Sniper and the Harry Potter and Lord of The Rings franchises), warned that the introduction of the VAT will raise the price of movie tickets and, as revenue drops, major American studios will lose interest in the Russian market. Alexander Luzhin, Executive Director of the research project Movie Research, wholeheartedly agrees: with the introduction of VAT, admissions will fall. 
And it’s unlikely that the new tax will, in fact, support  Russian cinema. “Because we do not have the so-called designated taxes, this VAT will go straight into the General Budget, and there it will stay”, says leading Russian producer Sergei Selyanov (Tulpan, The Cuckoo, Mongol: The Rise of Genghis Khan). “This will cause significant damage to theaters. The result will be bad not only for foreign but also for Russian cinema. Many theaters will
just close”.
If the VAT is imposed, the average Russian film-goer will have to pay 2 dollars more for a movie ticket; at the current exchange rate of the ruble against the dollar, this makes going to the movies virtually out of reach for most Russians. “Maybe someone has a feeling that the American cinema would suffer from this, but actually the Russian audience will pay for such measures”, Selyanov adds. “The ticket price will rise by 18-20%. And the ticket price is a sensitive factor. A 20% increase is a lot, and it is clear that once there is less audience there will be less revenue for theaters and some of them will be forced to close. And that’s very bad. American cinema will not suffer much, because Russia, although being an important territory, is not number one”.  
So far no one in Hollywood has commented on the imminent introduction of VAT on American films in Russia.
A few days ago, out of the blue,the Economy Ministry declared that after their internal analysis it was established that imposing a VAT tax on Foreign Films was not feasible, since it contradicts Russia’s obligations as a member of the World Trade Organization. The reprieve, however, didn’t last long – soon after the Ministry announced that it is once again considering  the addition of VAT on tickets for both Foreign and Russian films.
 
The final word belongs to the Russian Parliament – the Duma. The proposal will be presented to the Duma in September – and it’s expected to be approved.
Serge Rakhlin