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 Understanding VAT refunds

Traders want hike in VAT instead of LBT or octroi
June, 12th 2014

The state government appears to be moving to replace the Local Body Tax (LBT) with a hike in Value Added Tax (VAT). The traders associations from the city have endorsed the recommendations made by the Maharashtra Economic Development Council (MEDC), and rejected the idea that octroi should be brought back instead of LBT.

Chief minister Prithviraj Chavan held a meeting with mayors and municipal commissioners of all civic bodies at Mumbai on Tuesday. Chavan had asked mayors and civic chiefs to hold meetings with traders associations and take their views on replacement of LBT.

Municipal commissioner Shyam Wardhane and standing committee chairman Narendra Borkar held meeting with traders associations on Wednesday. Borkar told TOI representatives of all associations demanded hike in VAT and abolishment of LBT. "Even traders associations do not want octroi to be introduced again after scrapping LBT. Wardhane will convey the views of traders associations to the chief minister's office on Thursday," he said.

President of Nag Vidarbha Chamber of Commerce Dipen Agrawal told TOI all traders endorse alternatives given by MEDC in its report submitted to the state government. "Currently, government has fixed VAT at 12.50%. It will increase to 15% in case the MEDC recommendation is accepted. MEDC recommendation is acceptable to civic bodies too," he said.

Agrawal submitted a memorandum to Wardhane during the meeting. In the letter, Agrawal said alternate levy recommended by MEDC would slightly burden members of rural population. "MEDC noted that rural population will also be burdened by octroi or LBT as they source their materials from traders within city limits. But MEDC's alternatives will not hit the civic bodies. Government abolished octroi in around 300 municipal councils in 1999 without introducing a compensatory levy. It started to compensate municipal councils for loss on account of octroi abolition, which was around Rs 500 crore in the first year and increased to Rs 1,300 crore in 2013-14," he said.

Agrawal added that MEDC suggested alternative resources after studying the actual octroi/LBT and Escort Fee, VAT and other collections for five financial years. "Alternatives include motor spirits, stamp duties, local body surcharge on VAT and increased FSI as a bridge arrangement. Revenue from VAT increased to Rs 60,000 crores in 2013 from Rs 20,000 crores in 2005. Therefore, it can be safely concluded that civic bodies' revenue based on VAT will also grow in times to come," he said.

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