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Government drops plan to hike VAT
July, 03rd 2015

With LBT gone, civic bodies can collect stamp duty, professional tax

To complete its poll promise of abolishing Local Body Tax (LBT) from August 1, Devendra Fadnavis-led BJP government is in the process to allow municipal corporations to collect either stamp duty and registrations fees or professional tax to compensate for their financial loss. The decision would put further stress on state exchequer.

According to sources in the government, earlier the state government was planning to enhance rate of tax under Value Added Tax to compensate the losses but taking opposition from the people seriously, it has now decided to allow collection of stamp duty and registration or professional tax by the municipal corporations.

LBT is a major source of income of all municipal corporations, excluding Brihanmumbai Municipal Corporation (BMC) after abolishment of octroi.

In Maharashtra, it was introduced in a phased manner. LBT was introduced in the year 2010 in tier III cities. In 2013 it was made applicable to tier II and I cities. But in the same year, traders started protesting against it fearing that it would lead to harassment and corruption from local authorities.

In the run-up to Maharashtra Assembly polls, the BJP had assured that it would scrap LBT after coming to power and subsequently, made the announcement for abolishing it from August 1 in its first budget presented in March this year.

Sources in the finance department said that the decision would put an additional estimated burden of Rs 14,500 crore on the state exchequer especially when it is already facing a revenue shortfall of Rs 26,516 crore and projected deficit for 2014-15 was pegged at Rs 4,103.

Maharashtra earns around Rs 19,000 crore from stamp duty and registration fees. The revised estimates for stamps and registration duties for 2014-15 are at Rs 19,420.73 crore while the budget estimates for 2015-16 was kept at Rs 21,000 crore.

After the decision, municipal corporations will be allowed to keep the income from stamp duty and registrations fees or professional tax to compensate for the loss. Finance minister Sudhir Mungantiwar admitted that the government would have to bear the additional burden for abolishing LBT but clarified that it would be carried out only for eight months.

“We have to stretch the situation for eight months as from April 1, 2016 Goods and Services Tax (GST) will be introduced after which all such taxes will be scrapped automatically,” the finance minister told this newspaper.

A senior officer from finance department pointed out that the state government has recently announced scrapping up toll nakas that would cost around Rs 600 crore to the state exchequer. In addition, the government has to clear supplementary demands worth Rs 3,000 to Rs 4,000 crore in the coming monsoon session of the Maharashtra legislature.

“The government needs to be prepared for shelling out hundreds of crores as relief package in case of drought or crop loss due to heavy rains. This decision will further put more financial stress on the state treasury,” the officer observed.

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