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Many traders in the state have stopped paying local body tax (LBT) after the chief minister assured abolition of LBT in the ensuing state budget.
However, the state revenue department is of the view that LBT will not get abolished in a stand-alone manner. According to them, the loss will be compensated by some other form of tax, may be some cess.
“This is because with octroi gone, LBT has become a major source of revenue for many municipal corporations in the state. If the tax is abolished altogether, it will create a huge deficit,” officials stated. This announcement may happen in the ongoing state budget session.
They suggested that there are many alternatives on the cards. One is to impose a turnover tax in the form of cess on value added tax (VAT). While the modalities will be designed by the revenue department, the jurisdiction to levy, monitor and collect the tax will be under the Municipal Corporation.
Another alternative is to increase some existing tax or VAT itself and then allocate the jurisdiction of management – levy, collection and monitoring - to the municipalities or local bodies. In any case, the jurisdiction for management of the tax will be entrusted to the local bodies. This is because if the revenue department collects it and then transfers it to the municipalities, it will make the corporations too dependent on the government for funds.
The LBT was introduced on April 1, 2013. Traders had then strongly opposed it, saying the new system had many flaws and was not trader-friendly, but they complied with the LBT norms later.
The Maharashtra Government earlier had proposed to amend the Bombay Provincial Municipal Corporations (local body tax) rules 2012 with certain changes to incorporate LBT. Till today, the amendments never took place, and traders in the Bombay Municipal Corporation do not pay LBT while all other corporations pay the tax. However, traders under many other corporations in the state in their pre-budget memorandum had strongly suggested for abolition of LBT.
While the usual complaints of the traders across the state are unnecessary checks and raids, the most important amendment as per the draft of the amendments was that no operational or administrative official of the ministry across the hierarchy will have any right to inspect books of the dealers upfront without showing any proper reason. It will require the specific written permission of the principal secretary of the concerned department, the urban development ministry.
In fact, the amendment was proposed to allay the fear of traders that LBT will usher in inspector raj is unfounded. As per the amendment , it is a self assessment based tax but if any discrepancy is found, such as paying more VAT to obtain input tax credit but showing less purchases to pay less LBT, it will be scrutinised, just like income tax. Upon this, investigations will start. Therefore, there is no provision for immediate search and investigation.
Secondly, if a trader is registered under the Maharashtra Value added Tax Act 2002, it will suffice just to show that and get the LBT number. No documents other than those relevant to prove VAT registration will be required to be furnished separately.
Thirdly, individuals taking goods from one municipal area to another will be exempt from paying LBT, unless they are taking goods for further sale of that commodity. Earlier, they used to pay tax at toll naka or check post of such municipal areas.
Fourthly, the LBT rules exempt 59 essential day-to-day goods. The individual municipalities will be given power to enlarge the list as per their needs.
