Over the top


Last week, Vodafone made an appeal to the government of India should install taxes on over-the-top (OTT) players as WhatsApp, Viber, Hike and Facebook (http://timesofindia.indiatimes.com, 2014).

An over-the-top (OTT) application is any app or service that provides a product over the Internet and bypasses traditional distribution. Services that come over the top are most typically related to media and communication and are generally, if not always, lower in cost than the traditional method of delivery. (http://www.techopedia.com/, 2014)

over the top

Over-the-top applications only pay tax in the country or countries where their headquarters are located. This means they can earn revenues through for example ads without having to pay any taxes to the country where the user was located when clicking that ad.

Vodafone claims there is no level playing field. Vodafone India Managing Director and CEO Marten Pieters says: “We (operators) have to pay taxes, license fee and have to share revenue (with the government). The other guys have a complete free ride.”

Pieters makes an interesting point. Mobile network providers have seen their revenues from SMS text messaging drop to nearly zero because WhatsApp and comparable messaging services. Likewise, Skype and Viber are substitutes to calling over the mobile network of Vodafone and other mobile network providers. The remarkable thing is that these companies, offering substitutes to the services of mobile network providers, are being accessed largely through the networks of these same mobile network providers. The OTT pay no tax, whereas the mobile network provider pays taxes and licencing fees to the local government.

Apps as Skype, Whatsapp and Facebook have clearly radically changed the landscape of mobile network providers and put their revenues under heavy pressure. It can be argued that the OTT applications have an unfair competitive advantage, as they are not taxed whereas the mobile network providers are. What do you think? Do you believe it’s fair to tax OTT apps?

Resources:

http://timesofindia.indiatimes.com/tech/tech-news/Facebook-WhatsApp-must-be-taxed-Vodafone/articleshow/44820006.cms

http://www.entrepreneur.com/article/38912

http://www.techopedia.com/definition/29145/over-the-top-application-ott

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