In a double jolt for the already cash-strapped state government, the delay in enforcing a Goods and Services Tax (GST) regime in the country will mean that it has to bear an additional outgo towards compensating local bodies for abolition of the local body tax (LBT). This is in addition to the revenue loss due to the delay in rolling out the tax reform.
Last year, the Bhartiya Janta Party (BJP)- Shiv Sena led government had announced that the faith-based LBT, which replaced octroi in all municipal corporations except Mumbai, would be scrapped from August 1. This was in culmination of the BJP’s promise to the powerful traders lobby before the Lok Sabha and state assembly polls.
Continuing to compensate the civic bodies for loss of revenues and devolution of stamp duty collections from municipal areas will burden the already cash-strapped government. The government was expected to devolve Rs4,210 crore of stamp duty collections to local bodies in the current fiscal.
The state expected the new system to be in place for a few months only as the Centre was looking to introduce the GST from the 2016-17.
However, with political expediencies forcing the Narendra Modi-led Union government to put the introduction of GST on the back-burner, the state will have to continue bearing the burden of compensating local bodies for at least another year.
The GST aims at creating a single, unified tax regime for goods and services across India replacing other indirect levies like central excise, VAT, octroi and entry tax. It will boost the manufacturing sector and accelerate state’s ‘Make in Maharashtra’ plans and also reform the taxation process, hike tax collections and curb the black money economy.
A senior state finance department official said that they would continue with this committed liability.
Recently, Devendra Fadnavis had pointed out that delay in implementing the GST regime would lead to a Rs15,000 crore revenue loss for the state. Maharashtra is both, a manufacturing and consuming state and creation of a single market, through GST, is expected to benefit it.
“The state government is dragging itself into financial difficulties,” noted economist Abhay Tilak, adding that doing away with octroi, regardless of its systemic difficulties like corruption, was akin to “throwing away the baby with the bathwater.” Octroi was the largest source of revenue for local bodies, ensuring daily cash collections to meet liquidity needs.
This and later, scrapping LBT had affected the financial autonomy of local bodies. “More investments are needed due to pressure on city infrastructure… but we are cutting down on financial sources,” he noted, adding that scrapping LBT amounted to tax concessions for businessmen, who generated profits, and hence this “defied every type of financial logic.”