LBT scrapped for traders with less than Rs50 crore turnover

The state government decided to scrap local body tax (LBT) from Saturday for traders who have an annual turnover of less than Rs50 crore. In the area of 25 municipal corporations, the tax will continue for 1,162 traders whose turnover is above the Rs50 crore limit. Such people form just 0.15% of the total base of 8,09,553 traders.The state government will compensate civic bodies for loss of revenues by devolving stamp duty collections to them from municipal areas, chief minister Devendra Fadnavis on Friday told the state legislative assembly.The cash-strapped government has also made a provision for Rs 2,048.44 crore through supplementary demands approved in the monsoon session of the legislature as an emergency provision to financially compensate municipal corporations for the August to December period.Fadnavis said from August 1, LBT would be scrapped for those traders in 25 municipal corporations who have a turnover of less than Rs 50 crore. This will cover 8,08,391 traders (99.85% of the total).These 25 municipal corporations, (excluding Mumbai, where octroi, which replaced LBT, is still in force), are entitled to Rs7,648.82 crore in 2015-16 considering the average of maximum incomes for the last five years with an 8% rise.The LBT was among the largest revenue sources for these municipal corporations. It was introduced in phases from 2010 onwards to replace the much-reviled octroi.Traders had earlier sought that octroi be abolished and replaced with LBT and the erstwhile Congress- NCP led state government brought in the LBT to replace octroi in all municipal bodies except the BMC.However, traders later charged that LBT had led to "inspector raj" and corruption, though officials said the account-based levy would have also curbed income tax evasion. The BJP had supported the demand of this powerful lobby for the LBT to be abolished and replaced with an alternative like a surcharge on VAT.In his maiden budget speech, finance minister Sudhir Mungantiwar had announced that the faith-based LBT would be scrapped from August 1.But the inevitability of compensating the municipalities for loss of revenues and devolution of stamp duty collections will burden the already cash-strapped state government. Maharashtra is already groaning under Rs3.38 lakh crore loans and borrowings and the debt servicing burden amounts to an annual Rs27,000 crore.Before octroi was scrapped, the 26 municipal corporations in Maharashtra collected around Rs14,000 crore under that head, with Mumbai accounting for the largest chunk.Before deciding on transferring stamp duty collections to municipal bodies, the government was also considering other options like a surcharge on VAT, devolving professional tax collections to municipal bodies, a new tax or a turnover tax.The new system will be in place for a few months only as the Centre is expected to introduce the Goods and Services Tax (GST) from April 1, 2016. The GST aims at creating a single, unified tax for goods and services across India replacing other levies like central excise, VAT, octroi and entry tax. The GST will boost the manufacturing sector and accelerate the state's 'Make in Maharashtra' plans.