CA. Maheshwar M. Marathe
Around 2300 years ago in India, there lived a king called Dhanananda. He was known as a corrupt king, who used to steal and hide the government funds for his personal profits. He levied heavy taxes on people and even the wood used for cremation of dead bodies was taxed. People were very unhappy, they protested but were suppressed.
To set the things right came Acharya Chanakya, who very systematically dethroned the King and destroyed him from the roots (However there were also other more serious reasons for his destruction). Chanakya was a great Economist a Political Thinker and roaring Nationalist. Chanakya says “the tax collection should be done in the same manner the honey bee collects honey from flowers without hurting them”
Today the situation in Maharashtra is similar to the one created by Dhananand. Maharashtra is the only proud state in the country where we have octroi. The issue of abolishing octroi has been a long pending demand of taxpayers, industries, traders and transporters from every corner of the state. The Kelkar Committee (2002) reiterated that with introduction of VAT there should be unification of indirect taxes into a single tax. The Subodh Kumar Committee (2006) on octroi recommended that the system of octroi should be abolished. In short, what everyone is demanding is very simple, “Merge Octroi with VAT”.
LBT – THE TROUBLE
Despite demand from across the industry and suggestions by various committees to abolish octroi, instead of merging the Octroi with VAT, the state government is making it more rigorous by creating a separate administrative structure and has renamed the Octori as ‘LBT’ (Local Body Tax). And this is despite the fact that many times in the past the VAT rates in the state have been increased on an assurance that the Octroi shall be removed. In the era when whole country is moving towards the GST (Goods and Service Tax) regime which is consolidation of all possible indirect taxes such as excise, service tax, VAT, entry tax, profession tax, aiming at single window compliance, Maharashtra state is imposing a new indirect tax which means, one more compliance, one more set of officials and one more assessment and one more area of harassment of entrepreneur and the Business in the state.
As per the LBT provisions, if the ANNUAL value of purchase/Sale of goods is not less than Rs. 5000 of Schedule A Goods and Turnover of purchase / Sale of Goods is not less than Rs.1,00,000 of all types of goods then such businessmen is liable for registration. Once registered, all compliances are applicable. Some of the other draconian provisions of LTB are as follows
Going by these provisions following things become very clear.
This scenario is not very healthy for the prosperity of the state. Many states like Gujrat and Karnataka have merged octroi with VAT and are managing it successfully. None of the 125 countries world over where VAT/GST is in place has levied octroi. These examples very clearly state that, keeping a separate tax structure for local body when you have VAT/GST implemented is highly avoidable and keeping a single tax is highly advisable.
It is high time that the government listens to the voice of people and gives a serious though on merging the LBT with VAT. What is required most is the attitude of listening to the demands of the people and displaying a strong will power keeping aside the politics. Going by the non-complied assurances given by the state government the merger should not even result into increase in the rates of VAT but still a call can be taken on the rates based on the overall tax collections statistics and rates prevailing in the other states of the Country. The merger would require the state to plan its cash flow and a sharing mechanism has to be developed so that the requirements of the funds by the municipal corporations can be properly budgeted and the funds are forwarded to them. This is the only acceptable solution to the concerns raised by the industry.
Birth of another Acharya Chanakya is definitely required and has become inevitable in this country, as he has to set many things right which are more serious than LBT. Hence it is better that this small issue of LBT is not kept for his action and allow him to concentrate on the bigger issues.