Monday, May 20, 2013

LBT in a Single Page

What is LBT?
  • LBT stands for Local Body Tax, which has been introduced in most of the municipalities and corporations in Maharashtra,  in lieu of Octroi or Cess. 
  • It is a levy under entry 52 in the State list of Schedule VII of the Constitution of India, on the entry of goods into a city limits for the purpose of consumption, use or sale therein. 
  • Thus, the recent agitations against LBT, a levy, which is constitutionally valid, have given rise to questions as to the root cause of the agitations.
Then what is OCTROI ?
  • Octroi is a levy which was prevalent in Roman times. 
  • It was extensively used as a tax tool in Europe till World War II. 
  • Now, it is almost extinct except in Ethiopia and Maharashtra (a true reflection of comparable development of the economy or the situations of drought). 
  • Other states in India have done away with this levy and they share a portion of the Value Added Tax (VAT) or Sales Tax (ST) with the local bodies.
How does LBT work? 
  • It works differently from the octroi system. 
  • Traders have to compile a list of all goods procured within the month, feed the matter into the software provided by the civic body to check their LBT liability. 
  • They have to make payment once every 40 days using online portals, cheque, demand draft or cash through a designated bank or counters of the civic bodies.
Significance of LBT 
  • LBT will be the main source of income for civic bodies. 
  • It contributes between 50-70 per cent of the actual revenues of the corporation. 
  • The Pune Municipal Corporation collected Rs 1314.27 crores by way of octroi for the financial year 2012-2013, while the Pimpri Chinchwad Municipal Corporation  collected Rs 1200 crores  in the last financial year.
But why are they protesting if LBT is 
merely replacing octroi? 
  • The traders’ contention is that octroi abolition and imposition of LBT simultaneously is a betrayal. 
  • With VAT in place across the country, a double-tax regime is not acceptable, they say. 
  • 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. 
  • Government sources say tax evasion under the octroi regime was simpler, another reason traders are opposing LBT.
Have all Maharashtra municipalities 
imposed the tax? 
  • Out of the 26 corporations, 24 have migrated to LBT. Mumbai and Nashik will do so later this year.
 SC verdict on LBT ?

a writ was filed by Federation of Trade Associations of Pune (FTAP) in Supreme Court (SC) against the state government decision to replace octroi with LBT.

SC refused to impose a stay on the Govt decision !!!!

Why some people call it Draconian ?points against it ?
  • LBT is a draconian Act, especially with key words like ‘goods’, ‘dealer’, ‘business’ loosely defined in the legislation, giving enough scope for the administrators to stretch their imagination to fanciful limits to the common man’s harassment and dismay.
  • The Bombay Provincial Municipal Corporations Act, 1949,  the Act that gives right to levy LBT, as such does not have a penalty-limit prescribed for any violations relating to LBT, though there is an elaborate Annexure prescribing the various penalties. That shows that penalty cannot be levied legally.
    However, the Rule 48  framed under this Act, quantifies the penalty that can be levied in different cases. Thus, the said Rule is ultra vires the Act.
  • Another point against LBT is the cascading effect of teh Tax. Unlike excise or service tax or VAT, there is no concept of set-off or input credit.
  •  Another reason against LBT is that there is no time-limit that is specified for completing the assessment of the firms. In such situations, the dealers may be kept in suspense as to their liability to maintain books and records. 
  • The Act is not a comprehensive Act that is well worded or suited for taxation. 
A possible solution to this fiasco ????

They should bring in the changes in legislation to repeal LBT and make suitable changes in VAT so that the local bodies do share  revenues the state government derives from VAT.
This will ensure that the administration frees itself from the task of collection of addition tax and other related administrative work. This will also help the dealers of additional hassles of payment of tax, filing of return, surveys, raids, check posts, assessments, appeals etc. and also dealing with one more Government body prone to corruption.  

Copyright discailmer : This article is written by Swapnil Patil as appearing on his blog

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