Core Sector Status Likely For Paging, Trunk Operators

Paging and public mobile radio trunking (PMRT) operators may be granted infrastructure status in the forthcoming budget. The two may be included along with basic and cellular telecom projects under Section 80 I(a) of the Income Tax Act, which allows core sector companies to avail of a five-year tax holiday.

If cleared, the decision will mark the end of a series of representations made by the domestic paging and PMRT (closed user wireless groups like those with the police) operators associations to the department of telecommunications and the finance ministry. The associations feel that since paging and radio trunking are also in the telecom business, they should be given the status.

DoT had mooted infrastructure status for paging companies to revive the industry, which had been registering losses of some Rs 15 crore every month. Last year, telecom secretary A V Gokak too had made such a recommendation to the finance ministry. We have recommended that every industry that helps in the development of telecom should be recognised as infrastructure.

The 1997-98 budget had announced that the telecom industry would be accorded the status of infrastructure but only basic and cellular telecom services were included. Infrastructure status under Section 80 I (a) translates into major tax benefits for 12 years of operations.

Under the section, companies can claim zero-tax on their income for five years on a block of 12 years. This benefits companies implementing infrastructure projects which are characterised by huge capital investments and very low revenues initially. The projects generate revenues only in the later years of the licence period.

Since the companies make losses in the initial years, they do not have to provide for taxes. Then, later - say, from the fifth-sixth year - when the companies start making profits, the companies avail of the zero-tax benefit for five years. Therefore, the companies will not have to pay tax at all almost through the life of the project.

Paging and PMRT companies have been claiming that they address specific communications needs of customers. Paging companies, for instance, have been positioning themselves as the poor mans cellular providing connectivity at as less as Rs 2,000-3,000 compared to a minimum Rs 9,000 for a cellphone.

PMRT operators, on the contrary, say their service is for emergency purposes and by providing instant connectivity - unlike cellular systems - they can address the needs of closed user groups like construction companies, hospitals, taxi operators, besides the police and other law enforcing agencies.