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Maharashtra is promoting local body tax (LBT) as a user-friendly alternative to the archaic octroi. Mumbai traders have been antagonizing it. Their month-long strike was called off only recently after the Maharashtra government assured them that the October-1 deadline for LBT introduction will not be pursued. Maharashtra has not rescinded the new levy though.
Introduced in 1965 in Maharashtra, octroi was levied by municipal corporations on goods entering the municipal limits. Over the years, the octroi regime became fraught with practical difficulties. In recent history, octroi-charging states like Rajasthan and Gujarat abolished the tax, compensating it by other state government levies. Maharashtra, which houses India’s financial capital Mumbai, still has the ignominy of harbouring an anachronous and regressive tax regime like octroi.
Octroi, per se, needs to be abolished and substituted by a comparable revenue generator. It is useful to know that octroi collection of Municipal Corporation of Greater Mumbai (MGCM) in FY13 was a staggering Rs.7,200 crore accounting for nearly half of Maharashtra’s octroi collection.
While traders are not against new or substitute taxes, they shudder at the encumbrance of new compliances. Separate LBT account books and their maintenance for 10 years is amongst several formalities that the trading community is refusing to ingest, leave alone digest. As LBT in Mumbai would be handled autonomously by MCGM, there is apprehension of LBT becoming an opportunity window for harassment and corruption.
There is however another dimension to LBT. Let us take the case of Mumbai (the situation will be much the same everywhere else); if MCGM is authorized to collect LBT, it would mean that every trading business in Mumbai will come under the corporation’s purview. To start with, every trading firm will have to fulfill the basic requirement of being a “legal entity.” There is big trouble at the very root. In the labyrinth of narrow lanes in Mumbai, thousands of businesses flourish and astronomical sums transacted. An inestimable number of firms have physical existence but do not exist logically. Leave alone tax compliances, several trading firms do not even care to have a bill book printed! They operate on paper-thin margins, and ironically, without the slightest of paperwork! Survival and even profitability is assured through sizeable business volumes generated out of long and faithful years of client relationship. Such firms now realize that shutting shop would be “more profitable” than functioning viably in the LBT regime!
Mainstream traders are resisting the LBT compliance framework while marginal ones are fighting LBT to protect their sheer survival. Maharashtra is pushing for LBT as it wants to respect the autonomy of MCGM in spirit. Neither is the government sacrificing revenue nor are traders evading taxes; the difference of opinion is over the modalities.
Whatever the outcome of the ongoing LBT wrangle, any simplification in government-related paperwork and compliance is always welcome. In India, taxes might be procedural but procedures are certainly taxing.
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