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UNCLAS SECTION 01 OF 02 COLOMBO 001160 
 
SIPDIS 
 
MCC FOR D NASSIRY AND E BURKE 
 
STATE PLEASE PASS TO USTR 
 
GENEVA FOR USTR 
 
SIPDIS 
 
SENSITIVE 
 
E.O 12958: N/A 
TAGS: ECON ECPS ETRD EFIN SCUL CE
SUBJECT: NEW TAX ON FOREIGN BROADCASTING COULD CRIPPLE POPULAR 
FOREIGN TV PROGRAMMING 
 
REF:  (A) Colombo 534 (B) Colombo 1142 
 
¶1.  (U) Summary:  The Sri Lankan government (GSL) has imposed a 
hefty tax exclusively on foreign commercials, television programs, 
and movies distributed via television.  Private TV stations say they 
will go out of business as a result.  The two most prominent foreign 
media involve Hindi and English programming.  Perhaps the greatest 
impact of the tax burden will affect Hindi tele dramas which are 
extremely popular among local audiences.  The tax does not cover 
foreign films shown in movie theatres.  Post anticipates that this 
tax will lead to less foreign programming but will do little to 
resurrect Sri Lanka's dying film industry.  A new advance approval 
requirement also raises concern about potential undue GSL influence 
over the media.  The new tax comes at a time when local satellite TV 
companies are encountering other problems with the government (Ref 
B).  End Summary. 
 
A CRIPPLING TAX FOR ENGLISH PROGRAMMING 
 
¶2.  (SBU) On June 28, President Mahinda Rajapakse signed into law a 
tax on foreign television programs and commercials.  As reported in 
Ref A, the tax aims to assist the local film and teledrama industry. 
 On July 6, the tax was formally announced at a special media 
briefing chaired by the Treasury Secretary.  The tax will be charged 
at the rate of Rs 75,000 (approx. USD 750) for each 30 minute block 
of television programming.  Programs dubbed in Sinhala or Tamil, the 
two national languages, will be taxed at an even higher rate of Rs 
90,000 (approx. USD 900), per 30 minutes.   This is not a one-time 
fee.  All repeat telecasts will be subject to the same tax.  The tax 
must be paid and the Secretary of the Media Ministry notified two 
weeks prior to the telecast of the scheduling of each program and 
episode.  Foreign commercials will be taxed at Rs one million 
(approximately USD 10,000) per commercial per year.  The tax comes 
into effect on July 16. 
 
EXCLUSIONS 
 
¶3.  (U) The regulation excludes children's programs, educational 
programs, documentaries, sports, award winning films, international 
events, Tamil films and television series, and films made in Sri 
Lanka with a majority Sri Lankan cast/production crew.  The tax does 
not cover foreign films shown in movie theatres.  According to a 
Media Ministry source, it has not yet been determined whether the 
tax will be extended to cable and satellite broadcasts.  Post 
received its first call on July 13 for assistance in locating free 
programming that would fall within these exclusions. 
 
ADVANCE APPROVAL REQUIRED:  NEW CENSORSHIP MOTIVATIONS? 
 
¶4.  (SBU) In addition to the tax, the telecast of all foreign 
movies, TV series and commercials will now require prior approval 
from the Secretary to the Media Ministry.   (Note:  Given the 
lethargy of government institutions here, this approval requirement 
could greatly delay programming.  Additionally, this requirement 
raises serious concerns about increased government control of the 
media.  End Note.) 
 
TARGETED LANGUAGES? 
 
¶5.  (SBU) The two most prominent foreign media languages are Hindi 
(which is popular islandwide) and English (which tends to be watched 
by the expatriates and the more educated, English-speaking urban 
segments of society).  Perhaps the greatest impact of the tax burden 
will affect Hindi teledramas, which are extremely popular among 
Sinhala-speaking audiences, and perceived by the local industry as 
its greatest threat to survival. 
 
LOBBYING EFFORTS DID NOT ACHIEVE DESIRED RESULTS 
 
¶6.  (U) After the proposal to tax foreign programs was first 
announced last December, the Embassy made representations to various 
levels of government including the Finance Ministry, which was 
responsible for drafting regulations and had the final say in 
defining the tax.  At that time, we commented about the high cost it 
would put on foreign film programming, the likely reduction in 
consumer choice, and the negative impact reduced English programming 
 
COLOMBO 00001160  002 OF 002 
 
 
would have on government efforts to promote English in Sri Lanka. 
Responses have ranged from simply noting our concerns to attempting 
to persuade us with the logic of the new tax to dismissing our 
concerns by claiming that the broadcasters could simply pass on the 
hefty liability to their advertisers. 
 
ENGLISH PROGRAMMING POTENTIALLY UNSUSTAINABLE 
 
¶7.  (SBU) Sri Lanka has three 100 percent English language channels: 
 ETV, ART TV and MTV (not the music channel).  The majority of the 
content aired on these channels is imported from major studios and 
independent producers in the US.  TV station representatives say the 
tax is excessive and they will no longer be able to continue in 
business if they were forced to pay taxes at this rate.  According 
to Lakshman Bandaranayake, Managing Director of Vanguard Management 
Services, which manages ETV, the license fees from production 
companies range from $200 to $600 for sitcoms, dramas and movies, 
and he could not see any business sense in paying an even higher tax 
($750) to the government.  Bandaranayake was surprised to learn of 
the tax announcement, as ETV had received verbal assurances from the 
GSL that the English language channels would be excluded, since they 
cater to a limited English speaking audience.  Bandaranayake also 
said that the tax is excessive because the ETV's geographic coverage 
is limited and therefore the clients are a narrow segment of the 
market.  (Note:  Because of this limited audience, his ability to 
increase advertising fees is severely limited.  End Note.) 
 
¶8.  (SBU)  EconOff had also heard several months ago that the 
English broadcasts may be exempted.  But just before the recent 
announcement, T. L. Weerasinghe, the Finance Ministry's tax advisor 
told the Econ FSN that his Ministry contemplated the issues noted 
above, but could only exclude foreign Tamil languages programs, as 
Tamil is a "national language" and there is a large Tamil community 
in the country. 
 
¶9.  (SBU) Comment:  The new tax comes at a time when local satellite 
TV companies are encountering other problems with the government 
(Ref B).  It looks less like a revenue producing measure, and more 
like a punitive measure against foreign entertainment perhaps 
motivated by cultural xenophobia.  It remains to be seen whether any 
of this tax revenue will actually get into the hands of those who 
produce films in Sri Lanka's dying film industry.  Moreover, it 
could herald growing government control over private media.  We 
anticipate that this tax will be high in our agenda in the upcoming 
Trade and Investment Framework Agreement (TIFA) talks with the GSL. 
 
ENTWISTLE