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India Seeks To Introduce 'Lou Dobbs Approved' Skype Ban To Hamper Offshoring Industry

from the short-term-thinking dept

Fri, Dec 8th 2006 11:20am — Mike Masnick

Just as eBay was completing their deal to buy Skype, it was reported that Chinese officials were looking at ways to ban Skype in the country. Since then, Skype has bent over backwards to stay on China's good side, but it's still a risk. Plenty of other, smaller countries have tried banning Skype, usually as a way of protecting nationalized telephone service revenue. Of course, that view is often extremely short-sighted. As some countries discovered, by keeping telecom costs artificially high, it makes it more difficult for countries to take part in things like offshore call center work.

That last point seems particularly important in this latest case. Broadband Reports points out that India is working on a proposal that would ban the use of "unlicensed foreign" VoIP providers such as Skype or Net2Phone. The problem, you see, is that Skype and its ilk aren't paying the 12% service tax and 6% revenue share that the Indian government demands. Of course, by making it more expensive to do telephony in the country, it seems like they're only hurting the call center business that has employed so many people lately, which probably leads to much bigger problems than a small cut in tax revenue. There are other countries around the world greedily looking at India's offshoring business. With India facing a labor shortage of skilled workers for these jobs, labor wages are increasing as well. If other countries can offer both cheaper labor and cheaper telephone service, the highly touted Indian offshore call centers may no longer be able to compete -- at which point, the tax losses from those firms losing business will greatly outweigh the 18% not received from Skype.

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13 Comments

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chris (profile), 8 Dec 2006 @ 12:30pm

heh, just wait
til the value of the dollar falls far enough and all the labor oursourced over seas will come rushing back to the US. if our economy gets screwed up enough, perhaps other coutries will outsorce labor to the US. artificial telecom costs are one thing, but economics is quite another.
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Matt, 8 Dec 2006 @ 12:31pm

Not that unintelligent
I don't think banning Skype will make much difference.

It's applying the tax in the first place that makes telephony more expensive, which ultimately might start moving call centres away from India and into other countries.

Given the labor shortage though, it probably makes sense to tax the existing business. If India can only support x call centres because of the amount of labor available, then raising the price with taxation will bring demand back inline with supply.

Banning Skype will bring the supply/demand balance further into the control of the Indian government, which makes quite a lot of sense really. If India starts losing out to foreign competitors, I'm sure they'll have the sense to lower the taxes.
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Liberty Dave, 8 Dec 2006 @ 12:45pm

Free markets anyone?
"Banning Skype will bring the supply/demand balance further into the control of the Indian government, which makes quite a lot of sense really."

Yes, it makes a lot of sense to a communist/socialist regime whose goal is to control most if not all aspects of the marketplace, thus making matters worse for it's citizens, especially the poor.

Of course to encourage a free market where voluntary exchange occurs between parties this is a very bad move.

But you already knew that.
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Aaron, 8 Dec 2006 @ 12:55pm

I love it, moving call centers out of India and proving again that high taxes hurts businesses, which contributes to unemployment.
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rishi, 8 Dec 2006 @ 12:58pm

The true intention of banning Skype is not because they have not paid their taxes. It is because the competition from Skype is hurting the national government operator.

The government has time and time again shown that it is willing to protect public enterprises from competition. When the competition gets too close the rules of the game are changed midway.

This has happened in the mobile telephpny, airlines, mass transport and many other sectors.
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William, 8 Dec 2006 @ 1:18pm

Re: Not that unintelligent
I agree with Matt by raising the operating cost of call centers they can decrease demand. Which would take pressure off the labor market which is overheated. Thus keeping there primary advantage intact which is lower wages by stopping inflation and increasing tax revenue. It's a win win situation for the government of India.
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From India, 8 Dec 2006 @ 1:45pm

Re:
I agree to what rishi said. In the past, VoIP was banned. The main gateway (owned by the government) pretty much blocked all the VoIP traffic. When the ban was removed, the economy flourished; the long distance rates went down and the communication in general became cheap. The government telecommunication agencies were forced to compete and the competition is always good for the consumers. Not sure what the *real* behind banning Skype is, but it will certainly hurt the economy. I don't think the large call centers will be affected since they don't rely on Skype. They have shared leased lines to US and Europe.. They do use VoIP in some cases, but they will pay up and pass the cost to the companies in the western world.

Welcome to the globalization!
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Matt, 8 Dec 2006 @ 1:52pm

"Yes, it makes a lot of sense to a communist/socialist regime whose goal is to control most if not all aspects of the marketplace, thus making matters worse for it's citizens, especially the poor."

Doesn't that advocate removing taxes altogether?

I'm all for free markets, but profitable ones are always taxed by governments. There's nothing wrong with that.

I probably should have said "which makes quite a lot of sense from their point of view".
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Anonymous Coward, 8 Dec 2006 @ 4:25pm

Re: Re:
Not sure what the *real* behind banning Skype is, but it will certainly hurt the economy.
According to the article, the Indian government is apparently concerned that its "security" agencies don't have access to call the records.
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Anonymous Coward, 9 Dec 2006 @ 12:23pm

Re: Re: Not that unintelligent
Communist land in here!

You're all forgetting that government intervention in the markets always leads to deadweight loss, somewhere, somehow. Also showing a typical socialist-level understand of economics; an overheating labor market doesn't have to be a bad thing, not when the typical income there is so low. Supply and demand, as you guys put it, will operate efficiently on it own terms better than under the slow, indecisive thumb of the government, as when labor costs get too high, job creation would slow in that industry. Then India would be left with the maximum number of employed call center workers earning the maximum possible wages, who then spend their maximized incomes on other consumer goods in the local economy when they arent slaving over phone lines. The government coming in and trying to manipulate the markets only make them less efficient.

Capitalism wins every time. Given that they'd be lowering average income and lowering tax revenue below what it could've potentially been with a maximized call center market, it's a lose-lose for India, but can't expect socialists or lobbyist to see that.
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all our jobs are belong them, 9 Dec 2006 @ 8:12pm

screw the b@$turds
ha ha ha serves them right if viet nam takes their bizness
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Anonymous Coward, 10 Dec 2006 @ 9:33pm

The move is only fair IMHO. Its aimed to create a level playing field for firms already operating in India. By not paying the taxes, these firms at an undue advantage over the licensed operators.

If a firm wants to do business in a country, they need to pay their taxes and abide by the law of the land. Why is it so difficult to understand?
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Liberty Dave, 11 Dec 2006 @ 11:30am

Response to Matt's response
I'm all for free markets, but profitable ones are always taxed by governments. There's nothing wrong with that.

I take exception with your statment "There's nothing wrong with that."

I think there IS something wrong with that. It's not impossible to think of markets that are not taxed, or at least not nearly as much as they are now.

The more you tax the more incentives are diminished, the more you lower the standard of living for the citizens, the bigger government becomes, and the more they want to tax.

It's bad the more taxes are introduced. Not good. Ever.
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