In an exclusive interview with BS, the Maharashtra CM says certain sections of traders are opposing LBT out of misgivings
Consumers across Maharashtra are hard hit due to traders' agitation against the implementation of local body tax (LBT). In an exclusive interview with Sanjay Jog, the Maharashtra chief Minister Prithviraj Chavan explains the government's stand. Excerpts:
Despite your repeated appeals and the clarification on the nature of local body tax (LBT), why are traders across the state up in arms? Why this stand off?
The Government is committed to abolishing octroi, which is widely acknowledged to be a regressive tax that has been abolished everywhere else in the Country. It impedes free flow of goods and is prone to corruption and leakages. Despite all its known drawbacks, the system of Octroi continued in Maharashtra, longer than anywhere else as it was the backbone of municipal finances. So while considering the issue of abolition of Octroi, the most important consideration before the State Government was that the alternative should have the same yield and buoyancy as octroi, its incidence should be on the same category of taxpayers and it must protect the financial autonomy of the larger urban local bodies.
After in-depth consultations with all stakeholders, the alternative of LBT was formulated and the legal provisions and rules regarding LBT were framed substantially in accordance with the recommendations made by the representatives of various trade organisations in August 2009.
For municipal corporations other than Mumbai, the law for LBT was duly passed by the state legislature in December 2009 after extensive deliberation and the State Government is accordingly implementing the same. Over the last three years, LBT has already been successfully introduced in D-class corporations across the State.
As far as Mumbai is concerned, the necessary provisions for introduction of LBT are yet to be incorporated in the Mumbai Municipal Corporation Act, which, in turn would require legislative approval.
The Government has recently set up a high-level committee under the Chief Secretary for interacting with all the stake holders and recommending further improvements in the system of LBT.
Despite the aforesaid obvious merits in the system of LBT, certain sections of Traders are opposing LBT, out of certain misgivings and apprehension about harassment at the hands of the municipal officials in the form of malafide search, seizure and assessment.
You have been under attack even from your own party leaders, some of the MPs met Sonia Gandhi against LBT. What is your take? Have you received any directions from party high command for a review of LBT?
Much of the opposition was due to lack of clarity about this tax which was imposed as an alternation to octroi by a legislation by the both Houses of the State Legislature in December 2009. This not a recent decision. I have written to all the MPs and MLAs.
Further your co partner NCP has also targeted you demanding a review and a committee comprising senior ministers. Besides, NCP wants the issue to be discussed in the coordination committee. Is it a plan to corner you?
This law was passed by our government in 2009. The law is yet to be amended for Mumbai. We will discuss this in our coordination committee.
How is LBT different from Octroi? Traders are alleging inspector raj, complicated paper work and harassment from civic officials. What is your comment?
LBT, like Octroi, is levied and collected by the Municipal Corporation on goods brought into the City for consumption, or sale. However, unlike octroi, LBT is account-based, whereas octroi uses strong-arm methods of stopping incoming goods at nakas for recovering the tax, LBT, being account-based, is a faith-based levy, wherein the Government expects the importers to maintain truthful accounts of their imports and pay their taxes accordingly, filing just two returns every year in the process. LBT is expected to promote transparency in financial transactions.
Traders are demanding increase of one per cent in VAT instead of LBT. Is it doable?
A: Some people opposing the LBT are suggesting an alternative method involving levy of a surcharge on VAT which is proposed to be collected within municipal limits. The State Government has studied this option and doesn't find it suitable for the simple reason that the revenues from such surcharge, collected by the State Sales Tax Department, would have to be routed through the State Budgetary process and the accruals therefrom would have to be passed on to the Municipal Corporations by way of grant. This system would put an end to the financial autonomy of these bodies and completely destroy their ability to raise resources for their Projects through credit. This would be totally against the spirit of the 74th Amendment to the Constitution.
Traders complain that smaller traders as well as customers at large will hit hard. What is your take on this?
LBT is to be paid only by those who import goods into the city for consumption, use or sale. These include wholesalers and large size traders and not small retailers who purchase their merchandise locally. Secondly, the Government has recently decided to raise the minimum limit for LBT registration from Rs one lakh to Rs three lakh and has given the option of making lump-sum payment of LBT at two per cent to traders having annual imports up to Rs 10 lakh. LBT will not put any additional tax burden on the citizens, who are already paying octroi on the goods that they purchase.
What are the commodities excluded from LBT? During your recent meetings with traders' bodies what are their demands which have been accepted and what further relaxations are being considered?
Fifty-nine essential day-to-day goods are exempted from LBT and hence these goods will be cheaper once LBT is implemented.
What is the experience so far about LBT implementation in 24 civic bodies since 2010. Has it led to rise in revenues and curb corruption?
The experience of implementing LBT in the D-class corporations has been very encouraging in terms of maintaining the level of revenues and eliminating corruption and leakage at nakas.