At a recent review session of the Film Industry Promotion Law (2nd Discussion Draft), a number of NPC Standing Committee (the “Committee”) members called for an upper limit on compensations for actors in movies and TV shows.[1] To combat what is known as “sky-high film compensations,” the Committee proposes that the total payments to all actors in a film should not exceed 30% of the total production cost.[2]
In China, the average compensation of actors has increased by 5,000 times in the last thirty years. Famous actors now can command remunerations of 25 million to 100 million RMB ($3.75 – $15 million USD). Actor compensations normally only account for 20-30% of a film’s total production budget in Hollywood, Japan, and Korea. In contrast, they take up over 50% of the total budget in China. The high compensations sometimes come at the cost of diminished quality of screenwriting and production. By limiting how much the actors can get paid, the legislators hope that more attention will be paid to other aspects of film making and better-quality movies will be made.
Another problem with sky-high film compensations is the way such compensations are paid. Many Chinese actors do not pay income taxes on most of the compensations they receive because they usually enter into agreements with the producers for a fraction of the real amount to be paid. For example, a producer agrees to pay an actor 5 million RMB for a movie, but the actor demands that the written contract to only show 500,000 RMB as the compensation and the rest 4.5 million RMB be paid as after-tax income. This way, the actor avoids paying income taxes on the 4.5 million RMB. This arrangement is possible and common under the current enforcement regime of Chinese tax law.
The Committee is considering three possible ways to impose the compensation limit: through amendments in the Personal Income Tax Law, the Contract Law, or the Film Industry Promotion Law. The benefits and unintended consequences of the compensation limits will largely depend on how and through which body of law the restrictions will be incorporated.
It has become increasingly popular for Chinese and foreign producers to produce films jointly and for Chinese films to include foreign actors to enhance their cross-culture appeals. For international stars, it may suddenly become a lot less lucrative to appear in Chinese movies if the compensation cap is implemented. Matt Damon must be gloating that his appearance in the Great Wall happened before all this!
[1] The National People’s Congress (“NPC”) is the national legislature of China. The Standing Committee is an executive club within the NPC.
[2] The use of the word “actors” in this article is intended to include both genders, actors and actresses.
