Maharashtra to roll back local body tax

The embattled Congress-Nationalist Congress Party alliance government in Maharashtra has in principle taken a decision to roll back the controversial local body tax (LBT) which replaced the problematic octroi duty in civic bodies except Mumbai since 2010 in phases.

A formal announcement in this regard will be made by chief minister Prithviraj Chavan in a day or two, during the ongoing monsoon session of the state legislature. Chavan held a marathon meeting here on Tuesday with the mayors of 26 civic bodies and municipal commissioners to know their views on the tax. The government is considering three options which include re-introduction of octroi duty, imposition of VATable surcharge or multi-point turnover tax.

PUTTING AN END TO LBT

• LBT registration necessitated all traders to have a turnover of more than Rs 5 lakh irrespective of purchase of goods, locally or imported from outside the city
• As per LBT rules, if a trader brings in goods from outside & then exports it outside the municipal corporation limits, the trader has to first pay LBT and then claim for refund of goods exported
• Traders complained about delays and huge paper work, besides more compliance cost
• 26 municipal corporations cited tax avoidance by traders but failed to mobilise revenue equivalent to Octroi Duty due to implementation issues
• A large number of civic works are pending for want of funds
• Congress-NCP alliance received a major setback in the general polls due to a strong opposition against it

LBT was introduced in Maharashtra in a phased manner beginning with Tier-III cities by scrapping the octroi duty (local tax collected on various articles brought into a district for consumption). In 2013, the LBT was also applied to Tier-II and Tier-I cities, except Mumbai.

However, the implementation of LBT failed to mobilise revenue equivalent to octroi duty by civic bodies, now reeling under financial crisis. Besides, traders complained about payment issues, including huge paperwork.

Maharashtra Pradesh Congress Committee president Manikrao Thakre, member of the coordination committee, told Business Standard, “The LBT will go. What will replace it? The government will take a call and make the announcement in a day or two. The new tax should mobilise adequate revenue which is desperately needed by the civic bodies to carry out host of civic works. At the same time, the new tax regime should benefit traders who could pay the tax in an hassle free manner.”

The ruling Congress-NCP is convinced a strong opposition against LBT by the Opposition and trading community cost them heavily in the recently concluded Lok Sabha elections, where both the parties managed to win only six seats, while the Shiv Sena-Bharatiya Janata Party alliance bagged 42.

Pressure was mounting from Congress and NCP to scrap LBT to avoid further rout in the elections to the 288-member Maharashtra Legislative Assembly slated for September-October.

NCP president Sharad Pawar, who had a couple of meetings with the chief minister and traders, on Sunday asked the state government to take decision on LBT at the earliest.

The issue was subsequently discussed at the coordination committee of the Congress and the NCP.

Further, various traders bodies early this week gave an ultimatum to the state government for the abolition of LBT saying that it will lead to corruption and further harassment.

Sandeep Parikh, vice-president, Chamber of Small Industry Associations demanded that the government can subsume LBT into VAT whereby  only single tax to be imposed, which is VATable. The government needs to simplify the tax regime, maintain a uniform tax rate and keep a single agency for taxation.