The Congress led government in Maharashtra has taken a decision to abolish Octroi Duty and it will be replaced by local body tax (LBT) in the state.
Chief Minister Prithviraj Chavan on Tuesday said LBT has already been put in place in some of the civic bodies across the state though Octroi Duty is present in Mumbai, Thane, Pune, Pimpri Chinchwad. He hoped that by end of current fiscal Octroi Duty would be abolished in Mumbai and in other cities. Chavan made this announcement at the CII's national council meeting here.
He was responding to questions raised by CII members on existence of Octroi Duty in the state when it has been already abolished elsewhere. Members argued that it was draconian tax and lacks transparency in its recovery.
Chavan's announcement is crucial especially when there has been strong opposition in Mumbai, Pune and Pimpri Chinchwad civic bodies for its abolition as they get substantial revenue from it. In case BrihanMumbai Municipal Corporation its annual Octroi Duty collection is well over Rs 6,000 crore. These bodies argue that most of development works such as roads were done with the revenue collected due to Octroi Duty and they were opposed to its abolition.
Chavan admitted that there were several problems faced by the tax payer at the Octroi check posts and therefore the government was committed to abolish it. He hoped that Mumbai would shift to LBT regime by end of current fiscal. He mentioned about the account based taxation system introduced in Navi Mumbai. According to him, the government had one option of increasing VAT rates but it would have impacted adversely. Therefore, LBT was introduced.
A senior government official admitted that the government has been quite slow in the removal of Octroi Duty largely due to political compulsions. He recalled that a committed led by the former finance secretary (financial reforms) Subodh Kumar way back in 2006 had suggested that the losses due to abolition of octroi duty could be compensated by imposing municipal professional taxes coupled with revision in user charges. The committee had also recommended the imposition of a general entry tax.
The committee also recommended that civic bodies be permitted to impose and collect their own independent professional tax through enactment of a separate ‘Profession Tax Act’. For this, they would have the option to collect municipal professional tax themselves or rope in the services of the sales tax department for the initial years.
