Twitter
Advertisement

dna special: Scrapping LBT likely to raise taxes on property, water

The state government's move to bow down to the demands of traders and scrap the local body tax (LBT) may eventually burden people with hikes in municipal taxes such as property tax and water charges, in its bid to make up for the shortfall in revenue. 

Latest News
article-main
Sudhir Mungantiwar
FacebookTwitterWhatsappLinkedin

The state government's move to bow down to the demands of traders and scrap the local body tax (LBT) may eventually burden people with hikes in municipal taxes such as property tax and water charges, in its bid to make up for the shortfall in revenue. 

In his budget speech, finance minister Sudhir Mungantiwar announced that the faith-based LBT, which replaced octroi in all of the state's municipal corporations except Mumbai, would be scrapped from August 1. He added that extensive deliberations were required before enhancing the value added tax (VAT) rates, indicating that the task is yet unfinished.

However, senior state government officials said they doubted if the additional surcharge on VAT could ensure the same buoyancy in revenue that LBT had given civic bodies. Hence, they added, municipal corporations may be compelled to eventually hike local taxes to keep the revenue stream flowing.

"When it was in force, octroi had ensured that the financial health of civic bodies in Maharashtra was strong compared to other states. The introduction of LBT had led to additional collections for municipal bodies, thus pointing to corruption and leakages in the octroi system," said the bureaucrat, adding that the LBT collections were around two times that of octroi collected in the Mira Bhayander municipal corporation and one-and-half times in Pune. 

He doubted if the additional surcharge on VAT would be able to compensate the civic bodies fully for the loss in revenues due to abolition of LBT. "This may eventually necessitate a hike in property tax, water charges and sewerage levies. Otherwise, municipal corporations may not be able to pay salaries to even conservancy workers, affecting their basic functions," said the official, adding that this had to be decided by the general bodies of the corporations themselves. The state government can only issue directions to these civic bodies in this regard under the municipal laws.

The official noted that there was a scope for increasing levies on water supply as some municipal corporations charged citizens very nominally for this. "Though we have a budget distribution system (BDS), in case there are some glitches in devolving this additional surcharge on VAT to the corporations, this may cause a financial crisis. The biggest advantage of levies like octroi and LBT was that they would ensure a regular flow of funds every month into the civic body's coffers.

Any problem in this can create problems for most municipal corporations except those like Mumbai, Pune, Navi Mumbai and Thane, which are economically sound," he said, while however clarifying that there were systems in place to transfer this money to local bodies. For example, 0.5% of the stamp duty collected is passed over to local zilla parishads while for Nagpur Improvement Trust (NIT) it is 1%.
"The announcement regarding scrapping of LBT was in the air for a long time and this has led to rising payment defaults. However, the government has issued instructions against taking coercive action," the bureaucrat lamented.

Before octroi was scrapped, the 26 municipal corporations in Maharashtra collected around Rs 14,000 crore under that head, with Mumbai accounting for the largest chunk. Traders had earlier sought that the much-reviled octroi be abolished and replaced with LBT and the erstwhile Congress-NCP-led state government brought in the LBT in a phased manner from 2010 onward to replace octroi in all municipal bodies except BMC. However, the traders later charged that LBT had led to "inspector raj" and corruption, though officials said the levy would have also curbed income tax evasion.

Maharashtra and Ethiopia were the only ones levying octroi, a system rife with corruption and tax evasion. Before the state assembly elections, the BJP had supported the demand by the powerful traders lobby to replace LBT with a surcharge on VAT.
 

Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed-  Follow DNA on WhatsApp.
Advertisement

Live tv

Advertisement
Advertisement