Maharashtra govt defends LBT

An article by Ajit Ranade

Everyone agrees that the archaic, inefficient, corruption prone tax called Octroi should go. The good news is, that after an almost fifty year struggle, Octroi is almost extinguished in Maharashtra. It had already gone from all other states of India. Even in our state, it was weeded out of more than 200 municipal councils a few years ago. Since 2010, it is being slowly terminated in all the 23 municipal corporations. The last corporation from where it will go, a sort of last bastion of Octroi (possibly in the world), is Mumbai.
Its final demise in Mumbai requires a special legislation to be passed in the state Assembly. That will probably happen in July. But Octroi is not dying away peacefully. In these past few months, the ending of Octroi has led to agitation and strikes by traders, in Pune, Pimpri Chinchwad, Sholapur and now in Mumbai itself. Why so? It is not as if the traders are agitating to bring back Octroi. But they are upset about the tax that will replace it.
We can’t get rid of Octroi without finding a replacement. Octroi has been the only buoyant source of revenue for local bodies (i.e. municipal councils and corporations). That replacement tax is called LBT. It will have to be paid by individual traders and shopkeepers, just like they pay VAT now.
The idea of LBT is more than thirty years old. Other states of Gujarat abolished Octroi, but did not replace it with a LBT. Instead, their municipalities get a grant from the state government. Even in Madhya Pradesh there is a similar grant like mechanism.
This cannot be done in Maharashtra for three reasons:
(a) giving grant undermines the autonomy of a municipality. It means that the local body has to forever remain at the mercy of the state government. If the state delays payment of the grant for any reason, the municipal body can be crippled. The state government may also start playing politics by selectively delaying grants to those councils and corporations,which are ruled by opposition parties.
(b) the second reason, is the size of Octroi in Maharashtra is far more than in Gujarat or M.P. In Gujarat, the total Octroi intake was about Rs 1,400 crore, whereas in Maharashtra it is Rs 14,000 crore. So devising a grant scheme for such alarge amount is infeasible.
(c) the third reason why Octroi cannot be replaced by grant, is because of buoyancy. A local tax like LBT or Octroi is much more buoyant than sales tax or VAT (from which grants will be paid).
Already the smaller corporations like Mira Bhayandar or Kalyan Dombivali are realising the wonderful buoyancy of LBT. Furthermore there is no LBT on more than 150 items like food, medicines and other essential goods. Those priceswill actually come down with LBT. Neither the nationwide strike of pharmacists nor the teachers’ strike has anything to do with LBT. Even the APMC strike is mostly meaningless since most items are exempt from LBT anyway.
Why then are the traders agitating? Some of them fear harassment and extortion. But successful rollout of LBT in many places like Aurangabad, Akola and elsewhere shows that safeguards can be put in .The procedural issues can be addressed.
LBT personnel will in any case not have arbitrary search and seizure powers. Some traders fear that being caught in LBT means eventually being caught in VAT / GST / income tax net. To some extent this is true, but all traders below turnover of Rs 3 lakh are exempt anyway. And what’s wrong with paying legitimate taxes? We are all citizens, and paying tax is a “fee” for being a member of this club.