Mr. Rajesh Puranik landed at Mumbai airport from the States last week to shop extensively or his impending wedding and was puzzled to read the slogan ‘No LBT, No OCtroi’ on the shutters of shut down shops. Mr. Puranik left the country today morning without completing the task at his hand. Why so? Why could not Rajesh shop?
The answer is very simple; all the shops in Mumbai have not opened for public for almost a week now.
One may again ask the same question; WHY?
The reason being the traders are protesting against the Local Body Tax (LBT) that will be charged to them. The Chief Minister has clearly stated that the agitation may continue but he is not willing to bend the rules with respect to LBT and all the traders are obliged to abide by the rules.
Why is LBT introduced?
Prior to LBT, Octroi Tax was levied on the traders. Octroi was a local tax collected by the State Government or the City Municipality on articles brought into a town for local use. Levy of Octroi was based on the value, weight, length and number of articles and the basis of levy would vary from State to State or even between different local bodies within a State.
In 1965, Bombay Muncipal Corporation (BMC) introduced Octroi Tax in Mumbai. It was a tax to be levied on specified articles at their time of entry into the limits of the Greater Bombay for consumption, use or sale.
Octroi Tax is an age old concept & it also leads to serious traffic problems at the entry points of city, so a need was felt to replace this act. Till March 2013, almost all the countries in the world abolished Octroi Tax except Euthopia & one Indian State Maharashtra.
Finally in April 2013, Maharashtra abolished the Octroi tax & replaced it with LBT.
What is LBT?
LBT is the tax which will be imposed by BMC on the entry of goods into a local area for consumption, use or sale therein.
It is a self assessment or account based method of paying local tax, where the traders declares their tax liability by submitting records. Unlike in the Octroi regime, trucks carrying goods will not be subjected to physical checking at check posts.
What is the difference between Octroi and LBT?
Octroi, abolished in almost all municipalities in state, is paid every time a consignment enters the city, at octroi check posts whereas LBT attempts to speed up the goods movement, stressing self-declaration of goods by traders who will maintain LBT accounts.
What formalities are required for LBT?
Traders whose annual turnaround is more than Rs. 3,00,000/- have to register themselves with the BMC. Traders have to compile list of all goods procured within the month, feed the matter into the software provided by the BMC to check their LBT liability. They have to make payment once every 40 days using online portals, cheques, demand draft or cash through a designated bank or counters of the civic bodies.
Who is liable to pay LBT?
Any trader with a turnover of purchases and sales more than or equal to Rs 5000/- will have to pay LBT. This will include almost every trader even local kiranawala or even local panwala.
Why are traders opposing LBT?
The LBT Officers can check any vehicle at any point in time; they can inspect traders premises and also verify records for past 5 years. The Officers have the right of attaching traders’ property too.
It is the contention of traders that when Value Added Tax (VAT) was introduced they were promised by the government that after VAT all other taxes like Octroi would be abolished. However two years back, the government decided to increase the VAT by 1-2% stating that the government needed it to cover the amount that was not being collected after Octroi was stopped. The traders’ fraternity hence feels deceived by the Government and also does not want to get involved in additional paperwork required under LBT.
Should a consumer be worried about LBT?
VAT is in place across the country, LBT will be like double-taxation. Prices of goods are affected by VAT as well as by state or municipality-level taxes. Also, complying with various rules on self-declaration, record maintenance, account books, etc. could be an added cost under the LBT regime, which will indirectly be shifted to customers.
Further increment in tax will increase the cost of consumers’ lifestyle too.
For example: There is difference in price of petrol and diesel in various cities, Mumbai prices is higher than Delhi prices because of Octroi. After the introduction of LBT almost all the commodities that the consumers buy in Mumbai will become costlier than any other city.
Picture from here.