Inside the CMO – PERAK – KAHC Deal on Tariff for Hotels, Bars and Restaurants Part 4

The Copyright Act of 2001 is an Act of Parliament to make provision for copyright in literary, musical and artistic works, audio-visual works, sound recordings, broadcasts. The Act also establishes Kenya Copyright Board (KECOBO), a state corporation under the Office of the Attorney General and Department of Justice (AG). Principally the Act empowers KECOBO to license and supervise the activities of collecting societies, also known as Collective Management Organisations (CMOs). Anybody who wants to use music (subject to copyright) in public needs a licence to do so. The licence fee, or royalty, depends on the type of use. Royalty rates are set in tariffs, which are determined by CMOs.

According to Pubs and Restaurants Association of Kenya (PERAK) and Kenya Association of Hotel Keepers and Caterers (KAHC), the legal obligation to pay copyright license fees as prescribed in the tariffs is akin to a tax since it is levied against all businesses based on the use of copyright works as a value addition for their customers. In this regard, the concern is that the copyright framework does not contain any guiding principles, code of ethics or rules relating to setting of tariffs and licensing practices by CMOs. Therefore it may be argued that the basic principles of taxation ought to be applicable to copyright levies by CMOs in Kenya.
Many users in Kenya would argue that  the current copyright licensing regime including the tariffs set by CMOs do not conform to any of the basic principles of fair taxation namely: Equity, Efficiency, Certainty, Proportionality and Convenience:
– On equity, the tariffs should be fair and levied equitably. Users have long complained about ambiguous tariff-setting and numerous cases of unfair harassment, illegal arrests and confiscation of music equipment by licensing officers and the police.
– On efficiency, users in the hospitality sector have stressed that the current tariff system does not factor the dynamic nature of hotels, bars and restaurants as businesses which results in low levels of compliance among the users and paltry returns for copyright owners represented by CMOs.
– On certainty, it is opined that the unpredictable nature of the tariff system continues to have adverse effects on business planning and stimulating investments in the economy. Users argue that the CMOs have made numerous changes to the tariff system without due regard to the prevailing business environment. Users are able to plan and pay for other taxes, levies, permits, certifications except for copyright tariffs due to the latter’s highly unpredictable nature.
– On proportionality, hotels, bars and restaurants have for long decried the disproportionate burden of tariffs placed upon them due to their relative visibility and accessibility compared with other categories and types of licensees.
– On convenience, tariff assessment and determination by CMOs are a challenge for an average user to understand. Generally, users have found it difficult to comply with CMOs’ royalty payment demands due to the rigid and antiquated nature of the tariff system.
In light of the above, PERAK and KAHC proposed a new tariff based on a percentage of the Single Business Permit (SBP) fee and the Liquor License (LL) to be paid annually at the renewal of SBP and LL.  This proposed tariff (PT) covers public performance, communication to the public and live performances of musical and audio-visual works and sound recordings. The PT is based on a sum of the percentage ranging from 10% to 20% of the SBP and 20% to 30% of the LL.
It was reported that in the first nine months of the 2015/16 Financial Year, Nairobi County alone generated a total of KES 9.62 billion in aggregate annual local revenue. Out of this total revenue, KES 1.6 billion was generated from SBP and KES 153 million from liquor licenses.
Assuming the tariff formula was fixed at 30% of LL plus 20% of SBP, this would translate to KES 45.9 million plus Kshs 320 million which equals to KES 365.9 million in copyright royalty fees from Nairobi County alone. This amount is five times more than the annual gross collections of Performers Rights Society of Kenya (PRiSK) countrywide in 2015. Similarly, this amount is higher than the collections of Music Copyright Society of Kenya (MCSK) reported to be KES 360.9 million countrywide in 2015.
This new tariff proposal was accepted by the CMOs and a deal was signed in mid 2017. This blogger has argued that pegging a copyright tariff on SBP and LL may be problematic for various reasons:
1. There is no connection between SBP and LL on the one hand and communication to public and public performance rights held under copyright.
2. There is no explanation why SBP and LL were chosen for purposes of arriving at the proposed tariff yet hotels, bars and restaurants must pay many other different types of permits, levies, licenses and/or taxes.
3. There is a real danger of creating a precedent whereby other user groups will propose to peg their tariffs on their regulatory and/or legal fee requirements.
While it is perfectly understood that SBP and LL are known factors for hospitality and tourism sector players, these factors are unknown to the CMOs which creates a problem for tariff negotiations. KAHC and PERAK members consider music (in all its various forms) as one product that is mixed with many other commodities and then offered as an integral service to customers in their establishments. Whereas the CMOs consider their respective rights in musical works, sound recordings and audio-visual works as separate and distinct and whose exploitation by KAHC and PERAK is a value addition to their businesses. As such, the proposed tariff fails to adequately bridge the gap between these two seemingly divergent views on the nature and value of music for establishments in the hospitality and tourism sector.
The formula proposed in the proposed tariff is also problematic from a CMO perspective because it will open the floodgates for other user groups to take a similar stance in their copyright license negotiations. For instance, telecommunications players such as Safaricom Limited who pay millions in KES to Communications Authority of Kenya (CA) for network facilities licenses and mobile network licenses may push CMOs to adopt the same formula as in the proposed tariff. Similarly, broadcasting players such as Royal Media Services Limited who pay millions in KES to CA for separate broadcasting licenses for their radio and television platforms may also join the push to have their copyright license fees set according to the formula in the proposed tariff.
In the final analysis, this outcome as envisaged by the proposed tariff is undesirable for the CMOs therefore they will continue to resist any negotiations with PERAK and KAHC members if the tariff formula is pegged on SBP and/or LL.

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