UD Ministry wants revenue share from GST pie

The Urban Development Ministry has asked for a specific share of revenues from the proposed Goods and Services Tax (GST) for the urban local bodies in different states to improve their dismal financial condition.
The Ministry presented a case in this regard last week before the Select Committee of the Rajya Sabha that is examining the Constitution (122nd Amendment) Bill, 2015 relating to introduction of GST.
Ministry's effort comes in the wake of a recent observation by Urban Development Minister M Venkaiah Naidu suggesting such a share for urban local bodies.
According to sources, the Ministry informed the committee that this is one last opportunity to improve the financial condition of urban local bodies whose resource base has been steadily declining over the years.

The reasons cited against the decline included abolition of Octroi Tax at the behest of the central government, states taking over taxes earlier imposed by municipalities like Profession Tax, Motor Vehicles Tax, Entertainment tax, Duty on transfer of property etc.
While the urban population increased by about six times from 6.2 crore (17.30 per cent of country's population) to over 37 crore (31.60 per cent) in 2011, the share of municipal revenues in combined central and state revenues has substantially declined.

In contrast, the contribution of urban areas to GDP has increased from 29 per cent in 1950-51 to 65 per cent now and set to increase to 75 per cent by 2021.

The Urban Development Ministry further stated that once GST comes into being urban local bodies would not have any power to impose any taxes and hence, the need for ensuring a share of GST revenues to the urban local bodies.
The Ministry looks at the new GST regime as the last hope for municipalities to function as institutions of self- government as the third tier with a statutory share of GST or a City GST rate as part of State GST so that they can meet the emerging urban challenges.
While suggesting that the Finance Ministry may take a final view in the matter, the UD Ministry suggested that keeping in view the international experience, a City GST rate equal to 25-30 per cent of State GST or a minimum share in State GST of 25% could be considered for urban local bodies.

Mumbai, the only city still levying Octroi, gets a revenue of Rs 7,500 cr from this tax which was once the preferred tax of municipalities. This speaks for the extent of loss of revenue base for urban local bodies further to abolition of Octroi.