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No merger of local body tax with VAT, GST
February, 06th 2013

While octroi will be abolished across the state by October, it will not end the woes of taxpayers. Goods and services are likely to be taxed at multiple levels under the new regime.

While the civic body will replace octroi with the local body tax (LBT), value-added tax, another indirect tax collected by the state at different stages of sale, will continue. The state government has ruled out a merger of the two indirect taxes. A government-appointed panel for alternatives to octroi deliberated the merger in detail.

While claiming that a single-point indirect tax system was ideal, the committee, in its report, has said the merger might not be "practical" due to financial considerations.

The state could soon brace for a third indirect tax on goods in the form of Goods and Services Tax (GST), which is under active consideration of the Centre. The panel, headed by principal secretary (finance) Sudhir Kumar Shrivastava, submitted its report to chief minister Prithviraj Chavan on January 28. Chavan has accepted the report in toto.

The committee recommended replacement of octroi with LBT across the state. In light of the development, the Brihanmumbai Municipal Corporation (BMC) has set an October 1 deadline to switch over from octroi to LBT. Other big cities, including Thane, Pune, Nagpur, Pimpri Chinchwad and Nashik, will adopt it from April 1.

The decision of non-integration of VAT with LBT, or LBT with GST was taken after these municipal corporations stated that such a move would cause substantial loss of revenue. "It would be difficult to compensate the corporations for the losses," a panel member said.

Meanwhile, the state government has decided to make it mandatory for civic bodies to seek its approval for fixing or revising tax rates on goods under the LBT regime.

The panel has recommended uniform tax rates be adopted across the state. It has suggested categorizing of goods into various tax bands, which should be common across the state. Following Chavan's approval, the state urban development department has now appointed a sub-committee comprising municipal commissioners of the six corporations to finalize tax rates. A separate list of tax-exempted items will be prepared, an official said.

An official added the sub-committee has been asked to ensure that these rates are revenue-neutral and not too high.

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