Getting A Break In Moscow Getting A Break In Moscow / New Tax Benefits To Boost Russian...

Generous new tax breaks for the Russian film industry are promising a boom in production, distribution and exhibition after years of chronic underfunding.

The law exempts the industry from a 20% value-added tax imposed on all business contracts in Russia and allows investors to reap tax-free profits from money put into film. The new law came into effect last week and is valid for three years, expiring on Jan. 1, 2002.

To qualify for the tax breaks, films must have no more than 30% foreign investment and crews, be shot in Russian or another language spoken in the Russian Federation, and at least half the budget must be spent in country.

Industry leaders hope the new measures, long promised under a 1996 law on state support of cinematography,will attract more investment into a business long-starved of public and private funds.

"This is very good news for the industry,"said Sergei Livnev, former director of Moscow's Gorky Film Studios, who quit late last year to concentrate on finding backers to build multiplex cinemas. "Hopefully this new law will make it easier to raise money for production, distribution and exhibition."

Livnev, chairman of United Film Co., which plans to break ground on a six-screen central Moscow multiplex by the early summer, said the new law should spur investors to put money into film and theater construction.

"We have commitments from private Russian business investors for most of the $5 million we need for our first multiplex, but this will certainly give a boost to negotiations with potential investors," Livnev added.

The climate for investment in Russian film is not as stark as newspaper headlines seem to suggest, he said. Last year's banking crisis and ruble collapse had left real businesses-- those involved in food production, distribution and marketing, for example -- with cash reserves and nowhere to invest.

"It's easier to find investors now than before, because then, too many people were seduced by the lure of enormously profitable state bonds. Now that game is over and businessmen from the real sector realize that rather than playing financial games, they should look for solid investment opportunities," Livnev said.

Livnev, who struggled to revive Gorky Film Studios during several years when Russian film production staggered from bad to worse, said exhibition in Russia remained wide open. Several high-profile multiplex projects in Moscow touted by banking and finance chiefs before last year's crisis had been put on hold, he added.

The news of tax breaks for the film industry was not welcomed by all: Izvestia newspaper warned that the Russian Mafia could use the measures for money laundering.