Maharashtra is likely to scrap the Local Body Tax (LBT). This levy is likely to be replaced with a surcharge on value-added tax (VAT) from the new financial year.
Maharashtra is likely to scrap the Local Body Tax (LBT). This levy is likely to be replaced with a surcharge on value-added tax (VAT) from the new financial year.
Even this surcharge will be a stop-gap arrangement as the country is poised to move into a unified Goods and Services Tax (GST). A constitutional amendment for implementing GST has been introduced in the Lok Sabha in the winter session.
Traders have been demanding the abolition of LBT, claiming that it only encouraged corruption. The erstwhile Congress-NCP government had brought in LBT in a phased manner to replace Octroi in all municipal bodies, except the BMC.
What is Octroi?
Octroi means entry tax on goods and commodities meant for sale. In Maharashtra, it exists only in Mumbai. This is levied on goods entering one municipal corporation from another. So, when a truckload of goods from an industrial area in Thane enters Mumbai, the BMC levies octroi on it and vice-versa. Elsewhere in the world, it exists only in Ethiopia.
What about LBT?
LBT or Local Body Tax was introduced to replace Octroi. Though traders had demanded the introduction of LBT as a replacement of octroi, they later wanted its abolition as well. LBT is an account- or book-based levy. In 2013, traders went on a strike against LBT, arguing its implementation would lead to “inspector raj” and that it was anti-trader.
So, what will be the new tax?
Sources say there is a likelihood of the LBT being scrapped in the coming budget, which will be presented by finance minister Sudhir Mungantiwar in March. “LBT will be replaced with a surcharge of around 1% on VAT,” they said. The additional surcharge on VAT will be devolved to civic bodies. But it is likely to be in force only for a year as the Centre plans to roll out the GST regime from April 2016.
Are civic bodies against surcharge?
VAT is collected by the sales tax department. Civic bodies are against the idea of handing over their tax collections to the sales tax department. However, sources say “this will also overcome resistance from civic bodies as the issue will be laid to rest in a year’s time when it will be replaced by GST.”
What is GST?
GST, or Goods and Services Tax, aims at creating a single, unified tax for goods and services across India, replacing other levies like central excise, VAT and octroi. GST will be a homogeneous indirect tax, which will create a single market.
What are trade bodies saying?
Mohan Gurnani, president, Federation of Associations of Maharashtra (FAM), says: “We have no problems with the surcharge being accounts-based, but it must be subsumed with VAT. He said the LBT had “opened new doors to corruption” with municipal tax officials getting a “free hand” to deal with transactions.
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