Faced with a cash crunch, the state government is looking at continuing with the local body tax (LBT) for large industrial houses in municipal corporation areas. However, traders and industries with a turnover less than Rs50 crore may be exempted from paying the LBT, which was evolved as an option to replace the octroi.
To compensate municipal corporations for the loss of revenue, with the LBT being withdrawn from 25 municipal corporations, except Mumbai, from August 1, the state government is looking at options.
The options include a surcharge on value added tax (VAT), devolving collections of stamp duty and registration charges or professional tax to municipal bodies, a new tax or a turnover tax. However, sources admit that this devolution is easier said than done, with a number of technical and financial issues involved. From 2010 onwards, the state had introduced LBT in phases.
State finance minister Sudhir Mungantiwar told dna that they were considering continuing with LBT for large industrial houses that accounted for a large chunk of LBT collections in municipal areas. He, however, added that a final decision was yet to be taken, with the proposal still under consideration.
“Why should (these large industrial houses) be exempted from LBT and given concessions?” he questioned, adding that around 250 industries accounted for around Rs1,100 crore LBT revenue to municipal corporations.
“There is little point in leaving out these 200-250 people and passing on the burden to lakhs… after all, these industries give lakhs of rupees to municipal corporations,” said Mungantiwar.
The state has also moved supplementary demands worth Rs2,098.40 crore in the monsoon session of the state legislature to cover the expenditure from August to December for state assistance to municipal corporations in lieu of LBT being cancelled. This is being done as an enabling provision and to prevent withdrawals from the state’s consolidated fund (CF) when the decision is taken later. From August 1, LBT exemptions will be granted to traders whose annual turnover is below Rs50 crore in 25 municipal corporations.
The new system will be in place for a few months only as the Centre is looking 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 — central excise, VAT, octroi and entry tax. The GST will boost the manufacturing sector and accelerate the state’s ‘Make in Maharashtra’ plans.
However, the decision to compensate the bodies for loss of revenue will burden the already cash-strapped state government. Maharashtra is groaning under Rs3.04 crore loans and borrowings and the debt servicing burden amounts to an annual Rs24,000 crore.